EAE: Regional Integration towards “One Asia”

EAE: Regional Integration towards “One Asia”
East Asian Economy <Lecture Note 7 > EAE: Regional Integration towards “One Asia” * Some parts of this note are summary of the references for teaching purpose only. Semester: Fall 2013 Time: Thursday 2-5 pm Room: 423 Professor: Yoo Soo Hong Mobile: Home P.: 1 1

Global View of Asia The 21st Century is the Asian Century.
Regional blocs, including East Asia will be prominent. Principal blocs will be Europe, East Asia and the Americas.  Asia will be almost half of the world’s economy by 2020.

Issues for ‘One-Asia’ Lessons from EU Economic conditions
Political / Diplomatic / IR conditions Leadership Institutional development How much transfer of sovereign power (right) ?

Basic Economic Indicators by Region and Subregion

Average GDP Growth Rates of Selected Asian Economies and Sub-regions

Three Mega-Regions

Main Regional FTAs/EPAs

FTA Coverage Ratios Proportion of trade with FTA partners in total trade (%)
Source: JETRO, FTA (July, 2012), Trade data (2011)

Competitive Liberalization in Asia-Pacific
ASEAN+6 EPA (ASEAN , Japan, China, Korea India, Australia, New Zealand) Free Trade Area of Asia-Pacific (FTAAP) ASEAN+3 FTA (ASEAN, Japan, China, Korea) USA Canada Mexico Peru Chile Hong Kong Taiwan Russia Papua New Guinea November 2004 Proposed by China at ASEAN+3 Summit August 2006 Proposed by Japan at ASEAN Economic Ministers’ Meeting November 2006 Proposed by the US Population (thousand) 2,059,400 Trade (million $) 2,533,847 GDP 9,899,420 Intra-regional trade 43.1% Population (thousand) 3,207,960 Trade (million $) 2,893,252 GDP 13,835,060 Intra-regional trade 43.6% Population (thousand) 2,677,790 Trade (million $) 8,469,530 GDP 35,412,050 Intra-regional trade 67.1%

FTAAP: Free Trade Area of the Asia-Pacific
TPP RCEP(ASEAN+6) （ASEAN+JP, CH, KR, IND, AUS, NZ） Current members Singapore Brunei New Zealand Chile USA Vietnam Viet Nam Malaysia Peru TPP Australia ASEAN+1 FTA Japan-China-Korea FTAAP (APEC) Korea Russia China China Canada Korea Japan India Japan CH. HongKong CH. Taipei Thailand Brunei US Malaysia Mexico Vietnam Philippines Singapore Peru Indonesia PNG Australia & NZ Australia　　 Chile New Zealand (Source:　METI, Japan)

Issues and Challenges in Regional Integration
Sequencing: How should Asia sequence its integration efforts in the areas of trade, monetary, and financial integration? Style: What is the appropriate style for Asian economic integration? Specifically, how institution-intensive should Asia’s integration initiatives be? Scope: What would be the scope of Asian economic integration in terms of countries and sub-regions covered? Speed: How fast should Asia pursue regional integration in its various dimensions/tracks, or what is the appropriate speed for Asian economic integration?

Source: Fischer Stanley. 2006. “The New Global Economic Geography”.

Asia’s Importance in the Global Economy to Rise
Asia now accounts for about 60% of the world’s population, 40% of the global output, and 30% of world trade. - With the possible exception of the crisis years, Asia has been the fastest growing region in the world economy for many decades.  Impressive achievements in poverty reduction and improvements in socio-economic conditions in the last few decades. - China and India – two countries with over a billion people each – have also joined the Asian economic success story.  Most projections indicate that Asia’s importance in the global economy is going to increase in the next few decades. - Current assessment is that by 2020 most large Asian economies would have graduated to middle income status.

Rise of Asia Regional Development
There are already important and rapidly developing economic linkages among parts of Asia, particularly in East Asia, where a grouping of ASEAN plus Japan, China and Korea seems to be emerging. The politics of such a grouping are not simple, for the Japan-China relationship is evolving as the Chinese economy grows, and as it becomes clearer that China will overtake Japan at some point in the not too distant future Some in East Asia talk of following the example of Europe by improving trade and financial links, and later moving to a common market and unified financial system. It is recognized that this will take a long time, but those involved note correctly that it took the European Union a long time to evolve to its current condition At present, there is much talk of an East Asian common currency. Whether there would be a basis for such a currency depends on how China’s financial and currency management systems evolve. Since China would eventually be dominant in an East Asian economic bloc, its preferred currency arrangements will determine the eventual outcome.

Economic Implications
The rise of Asia, especially the rise of East Asia and of India, is already reshaping the world economy. China has a comparative advantage in everything. Part of the anxiety must derive from the discomforts of the adjustment process forced by the dynamism of Asia. Most of the developing countries and most of China’s neighbors can count the gains from China’s (and India’s) booming growth. China’s demand for raw materials, which has produced a boom in commodity prices, has helped many developing countries. China and India’s energy needs have helped push oil and other energy prices to their highest sustained levels. The fact that the global economy has been growing very rapidly by historical standards in the last few years despite concerns over global imbalances, the years will see high growth rates in Latin America and Africa, due to the rise of Asia as to as the global engine of United States growth.

Asian growth has benefited greatly from the relatively open international trading system that was built up after World War Ⅱ. All the East Asian miracle economies pursued export led growth strategies, with the bulk of the exports going to industrial countries in the west. However the impact of China and India on the international financial system does not depend mainly on the size of their quotas in the international financial institutions.

Defining Institutions for Regional Integration
Definition of Institutions in several ways - Durable rules that shape expectations, interests, and behavior - Formal obligations, informal norms, acceptable behavior - Arrangements and organizations ranging from ad hoc and informal forums that lack an organizational core to formal standing Institutions for regional integration in Asia - Organizations involved in regional economic integration and cooperation - The principals or contracting parties of these institutions include national governments or non-governmental organizations.

Regional Economic Integration
- Process whereby countries in a geographic region cooperate to either reduce or eliminate barriers to the free flow of products, people, or capital

Description in the Opposite Direction

Levels of Regional Integration
Political Union - Coordinate aspects of members’ economic and political systems Economic Union - Remove barriers to trade, labor, and capital; set a common trade policy against nonmembers; and coordinate members’ economic policies Common Market - Remove all barriers to trade, labor, and capital among members; and set a common trade policy against nonmembers Customs Union - Remove all barriers to trade among members, and set a common trade policy against nonmembers Free-Trade Area - Remove all barriers to trade among members, but each country has own policies for nonmembers

Full Economic Integration / Political Union
Type and Scope of RTA Tariff removal between members Common tariffs for non-members Free movement of production factors within the region Common economic policy adoption Super-national entity FTA (NAFTA) Custom Union (Benelux CU) Common Market (EEC) Economic Union (EC) Full Economic Integration / Political Union (EU)

Motivation and Conditions of Economic Integration
All countries can gain from free trade, investment and other economic cooperation. Linking countries together, making them more dependent on each other creates incentives for political cooperation and reduces the likelihood of violent conflict gives countries stronger leverage when dealing with other nations Economic integration can be difficult because while a country as a whole may benefit from a regional free trade agreement, certain groups within the country may lose a loss of national sovereignty to a certain extent Regional economic integration is only beneficial if the amount of trade it creates exceeds the amount it diverts trade creation occurs when low cost producers within the free trade area replace high cost domestic producers trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers LO2: Understand the economic and political arguments for regional economic integration.

Economic integration can be difficult because
while a nation as a whole may benefit from a regional free trade agreement, certain groups may lose it implies a loss of national sovereignty Regional economic integration is only beneficial if the amount of trade it creates exceeds the amount it diverts trade creation occurs when low cost producers within the free trade area replace high cost domestic producers trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers LO3: Understand the economic and political arguments against regional economic integration.

Effects of Integration
 Potential benefits Trade creation Greater consensus Political cooperation Creates jobs Potential drawbacks Trade diversion Shifts in employment Loss of sovereignty

Main Regional, Intraregional, and Transregional Forums in Asia
Source: ADB staff elaborations based in part on field interviews.

Support for Different Modalities for Enhancing Asian Cooperation

Evolution of Intra Regional Trade Shares (%)

Foreign Exchange Reserves of ASEAN+3 Countries

Uneven Economic Integration

Regionalization in East Asia
Concentration of economic activities (trade in goods and services, capital, people, etc) in a particular region Benefits of agglomeration > costs of agglomeration - Measurement of regionalization in terms of trade: Increasing intra-regional trade in world trade Increasing intra-regional trade in region’s overall trade Two Types of Regionalization - Market-driven regionalization - Institution-driven regionalization Factors behind Market-driven Regionalization - Rapid economic growth - Trade and FDI liberalization: multilateral and unilateral liberalization

Some Basics of Regionalism
- Trade creation or trade diversion? - A recent IMF staff paper suggests that Asian FTAs have not led to trade diversion. - Building block or stumbling block? - WTO consistency? - Trade realism RTAs have obvious benefit for members - Second-best choice - Scale economy and competition - More attractive to FDI - Political and geopolitics benefits 32

- Economic gains are not the only determining factor.
Regionalism or not? - Economic gains are not the only determining factor. - Multiple objectives of regionalism: Regional politics and stability Strengthen domestic policy reform Increasing multilateral bargaining power Securing market access Forming strategic linkages 33

The Economic Role of China in Asian Economic Integration
Why integrates? Trade within the Asian region is far from reaching its potential, and policies that facilitate integration and more efficient regional trade accelerate growth and expand its basis, especially for lower-income Asia. Tariff barriers are only part of the challenge to further economic integration and trade expansion in the region. A deeper and more inclusive Asian Free Trade Area can achieve for its members larger benefits than that would arise from global trade liberalization along WTO lines. The economies of the ASEAN have the most to gain (in domestic terms) from Asian economic integration, provided that this happens in a relatively uniform way. The Economic Role of China in Asian Economic Integration China becomes the major market for many Asian economies China’s rise as the major factor in shaping the new division of labor (production- sharing network) 34

Emergence of Institution-driven Regional Economic Integration
Rapid expansion of free trade agreements (FTAs) in East Asia in the 21st century FTA (free trade agreement): free trade (elimination, reduction of tariff and non-tariff barriers among FTA members) In East Asia ASEAN has become a hub of FTAs: 5 ASEAN+1 FTAs have been implemented Long term goal: Free Trade Area of Asia-Pacific (FTAAP) APEC-wide FTA 2 major initiatives have been negotiated: Trans-Pacific Partnership (TPP), RCEP (ASEAN+6)

Economic Integration in Asia

Intensity of FTA Activity in Asia
Growth of FTA in East Asia - The number of concluded FTAs includes Singapore (20), the PRC (12), Japan (11), India (11), Thailand (11), and Malaysia (10), with many more FTAs under negotiation. It is noteworthy that ASEAN—with one of the oldest trade agreements in Asia—is emerging as the major regional hub linking ASEAN members with the region’s larger economies. Having enacted FTAs with the PRC, Japan, and the Republic of Korea, ASEAN recently implemented regional agreements with India and with Australia and New Zealand jointly, and is in FTA discussions with the EU. - The varying degrees of intensity of FTA activity across economies in Asia can be related to several factors, including economic size, per capita income, levels of protection, economic geography, and production network strategies of MNCs.

- Singapore is by far the most active Asian economy in terms of the number and geographic coverage of FTAs. With its strategic location, the region’s most open economy, and world-class infrastructure and logistics, the country is the regional headquarters for many leading MNCs. - Singapore is seeking access to new overseas markets, particularly for services and investments. The country is a founding member of the ASEAN Free Trade Area (AFTA) and has implemented bilateral agreements with the largest Asian economies—the PRC, India, Japan, and the Republic of Korea—as well as economies outside the region, including the United States (US) and Australia.

- As a supporter of multilateralism, Japan was a latecomer to FTAs
- As a supporter of multilateralism, Japan was a latecomer to FTAs. The region’s first developed economy, Japan has the strongest base of giant MNCs involved in production networks and supply chains throughout Asia. One motivation for Japan’s engagement in FTAs is to provide a market-friendly and predictable regional business environment for its MNCs. Japan has rapidly implemented bilateral economic partnership agreements (EPAs) with 10 countries,5 an agreement with ASEAN, is negotiating agreements with Australia and India, and is about to reopen negotiations with the Republic of Korea.

- The two Asian giant developing economies, the PRC and India, are forming FTAs to ensure market access for goods and expand regional coverage for outward investment. To this end, the PRC implemented separate FTAs on goods and services with ASEAN and is now finalizing its negotiations on an investment agreement. The PRC has also forged bilateral comprehensive economic partnership agreements (CEPAs) with Hong Kong, China and Macau, China; FTAs with Chile and Pakistan; and is a member of the Asia–Pacific Trade Agreement (APTA). In addition, the PRC concluded FTAs with Singapore and New Zealand in 2008, and an Economic Cooperation Framework Agreement with Taipei,China in India is a member of APTA and has a comprehensive agreement with Singapore. It also has agreements with its South Asian neighbors.

FTA in Asia and the Pacific (as of January 2010)

FTAs in Asia by Country and Subregion
Source: Asia Region Integration Center website. www. Aric.adb.org (accessed 15 February 2012)

Growth of Concluded FTAs in Asia (number of FTAs by economy)
FTA = free trade agreement. Note: FTAs in Asia cover all FTAs with at least one Asian economy. Here, Asia includes the 16 economies included in the figure. Source: ADB’s FTA Database (available: downloaded August 2010.

Benefits of FTA Increase in Trade and Expansion of Foreign Markets
Trade creation effects and trade diversion effects Enhance Technological Capability and Competitiveness - Product differentiation and new technology development for enhancing international competitiveness Induce FDI and Capital Accumulation - FDI positively effects capital accumulation, technology transfer, employment, exports, etc. Improve Economic System Through Opening - Transforming the system through learning and for world standards Enhance negotiation leverage and credibility against foreign partners

Trade Liberalization in Terms of Declining Tariff Rates (%)

Institution-driven Regionalization in East Asia
Regional cooperation APEC: Trade and FDI liberalization and facilitation, Economic and technical cooperation - Bilateral and multilateral cooperation: Free trade agreements (Economic Partnership Agreements for comprehensive contents), ‘Chiang Mai Initiative’ (Currency swap), etc - ASEAN, AFTA, AIA (ASEAN Investment Area), etc. ASEAN+3 (China, Japan, Korea) Recent Surge of FTAs in East Asia Trend: East Asian economies started showing strong interest in FTAs toward the end of 1990s. Special characteristics: Comprehensive FTA (EPA) covering trade and FDI liberalization, facilitation, economic cooperation: APEC’s three pillars

The Factors behind the Proliferation of FTAs in East Asia
- Increase in market access - Sharp increase in FTAs in the world - Slow progress in trade liberalization under the WTO - Promote liberalization and policy reforms - Financial crisis in - Rivalry among East Asian countries (competitive FTAs, China-Japan, among ASEAN members) Motives behind FTA for Selected East Asian Countries Japan, Promote economic growth in East Asia: Increasing dependence on East Asia, Improve business environment for Japanese firms - China, Promote economic relations with East Asia - Korea, Play a role of facilitator for institutional regionalization in East Asia, Reunification of Korean Peninsula - ASEAN, Maintain bargaining power in East Asia, Receive economic assistance

Arguments Surrounding Economic Integration
Trade Creation and Trade Diversion - Trade creation – Increased exports by new members to other members resulting from membership Trade diversion – Decreased exports to members of the economic union by nonmember nations often resulting in the advantage shifting away from the lower-cost producer to the higher cost producer  Reduced Import Prices – Results from importers’ efforts to remain competitive despite tariffs imposed

 Increased Competition and Economies of Scale
The larger market created also means more competing firms which can result in greater efficiency and lower consumer prices - Internal and external economies of scale – Lower production costs from greater production or free mobility of factors of production  Higher Factor Productivity - Movement of labor and capital from areas of low productivity to areas of high productivity - Poorer countries may lose badly needed investment capital or labor to a more profitable richer country - More developed countries may lose companies who move to areas where operating costs are lower  Regionalism versus Nationalism – The greatest impediment to economic integration

Regional Groupings – Asia
Integration in Asia - Market forces are compelling Asia to move toward formal integration - Association of Southeast Asian Nations (ASEAN) was very informal - ASEAN Free Trade Area (AFTA) formed in 1991 reduced tariffs and set goal for customs union by 2010 - East Asia Economic Group (EAEG) has been proposed - Asia Pacific Economic Cooperation (APEC) has set goals of liberalizing trade - South Asian Association for Regional Cooperation (SAARC) on Indian subcontinent in 1985

Regional Cooperation and Integration
Recent Progress - With the global economy immersed in double-track growth- emerging economies expanding faster than advanced countries- Asia is forging ahead in part due to increased regional integration. - Asia is leading growth in global trade through increased openness, with intraregional and “South- South” trade growing faster than trade with traditional markets in the US and Europe. - The depth of trade integration varies across subregions, with the emphasis on intermediate goods trade reflecting expanding regional production networks.

- Cooperation in trade policy has developed most effectively in Asia through a combination of unilateral actions. But some regional free trade agreements (FTAs) also help foster intraregional trade flows, with the number of FTAs involving at least one Asian country dramatically increasing over the past decade. The degree of trade integration will likely increase. - Asia’s financial integration lags behind trade integration. The region’s financial markets remain more integrated through global markets than among themselves, but signs since the 2008/09 global crisis show financial integration has accelerated; yet subregional variations remain significant. - Indeed, Asia’s infrastructure gap is huge, requiring more cross-border connectivity to strengthen intraregional trade and regional demand.

- In addition to physical infrastructure, for effective connectivity Asia needs to strengthen its soft infrastructure—policy, legal, regulatory and institutional frameworks, along with systems and procedures. - International transmigration—including labor mobility within Asia—is increasingly important as migrants contribute to growth both in host economies and via remittances back home. - Regional integration can expand markets and input sources, better allocating resources across the region, thus accelerating economic growth. It can also improve risk-sharing. But there are also downside risks, ranging from potential contagion to growing income inequality and polarization.

Basic Economic Indicators by Region and Subregion

FTA Initiatives by Status (Cumulative as of Jan 2012)

Current Status of FTA networking
 Extended East Asia: The completion of (ASEAN+1)x6 (Table 1). Given a delay in FTA connection among Japan, Korea, and China, ASEAN becomes a virtual “hub” of FTA networking in East Asia.  Asia-Pacific: from networking to consolidation 9 advanced APEC countries have 20 FTAs signed/being effective, 9 FTAs under negotiations. FTAAP (APEC-wide FTA), Trans-Pacific Partnership (TPP) initiative (P4, US, Australia, Peru, Vietnam…)  Japan: 11 FTAs concluded Agricultural protection reduces the degree of freedom.

- Middle-income countries such as Malaysia and Thailand have emerged as regional production hubs for the auto and electronics industries, respectively. As one of the founding members of ASEAN, Thailand has entered into bilateral agreements with Australia, the PRC, India, Japan, and New Zealand. - Though the Republic of Korea does not have as many FTAs as do other large economies in the region, it has forged, or is forging, FTAs with ASEAN, Europe, and the US. The Republic of Korea has agreements with members of APTA, ASEAN, and Singapore within Asia; and with Chile and countries of the European Free Trade Area (EFTA) outside Asia. It also signed an agreement with Asia’s largest trading partner, the US, in June 2007 and is expected to sign an FTA with the EU. - With some exceptions, the region’s low-income economies—Cambodia, Indonesia, the Lao PDR, the Philippines, and Viet Nam—have tended to rely on ASEAN for concluding FTAs with the region’s larger economies. This may reflect weak institutional capacity, lack of human and technical resources, and limited leverage to undertake FTA negotiations in poorer economies. The ASEAN framework offers the possibility of pooling scarce capacity and resources.

The Evaluation of FTA Networking
Interactions between de facto and de jure economic integration The formation of international production networks The mission of FTAs after the Asian currency crisis Restructuring import-substituting industries Further activating production networks

The Evaluation of FTA Networking
 Liberalization of trade in goods Liberalization coverage AFTA is now completing a clean FTA in terms of the liberalization coverage for trade in goods, but other FTAs in East Asia still include dirty aspects. FTA utilization Considering other policy arrangements to avoid being taxed such as zero MFN tariffs, duty-drawback system, and others, the utilization of FTAs seems to be fairly high in ASEAN. However, further facilitation ion utilizing FTAs may be required, particularly for small and medium enterprises.

Rules of origin (ROO) ROO is certainly important in order to capture the benefit of liberalization effort in FTAs, and there still exists room for further facilitation. However, negative consequences of the complication of ROO seem to be limited in East Asia. Co-equal system works well.  Liberalization in other policy modes AEM (Table 6), ASEAN-Japan FTAs (cf. ACFTA, AKFTA) WTO+ works strongly. However, the context is not for pursuing the legal comprehensiveness of economic integration. Rather, the motivation of introducing WTO+ is pragmatic for serving diplomatic purposes or responding to requests of private sector extending international production networks.

Further Evaluation in a Wider Scope
 Toward assessing economic effects of FTA networking Static and dynamic, direct and indirect  Explosive increases in exports by East Asian countries in Both intra-East Asia exports and exports to ROW “Trade openness” enhanced in East Asia Direct effects of the removal of trade barriers (esp. AFTA) The reshuffling of production sites responding to trade liberalization More than proportional growth of demand for traded goods Non-homothetic tastes, growth of middle class  Assessment of FTA networking in a wider scope is required.

Integration Perspectives
The current system of overlapping FTAs seems to gain a certain level of appreciation; economic/political momentum toward pluralateral framework may not be very strong in East Asia.  ASEAN+3 vs. ASEAN+6 Consolidated FTA: not worthwhile discussing seriously without CJK FTA Forum competition: depending on attractiveness of topics, willingness for dialogue partners to participate in, and the feeling of ownership by ASEAN  East Asia vs. Asia-Pacific Approach and agenda are different (pragmatism vs. rule-oriented, advanced-country-oriented vs. development); can go both at the same time. Effective interactions of the two would provide an alternative framework for G2.  Asia-Pacific is likely to lead further development of FTA networking/consolidation in the coming years.

Challenges Posed by Asian FTA
Improving Firm-Level Use of FTA Preferences Utilization of FTA Preferences (percent of respondents by country) FTA = free trade agreement. Source: Kawai and Wignaraja (2011).

Tackling the Asian ‘Noodle Bowl’
- Rules of Origin (ROO)s are a potentially challenge of Asian FTAs. These are devices to determine which goods will enjoy preferential tariffs in order to prevent trade deflection among FTA members. - Asian FTAs have complicated ROOs, sparking concerns about what the attendant rules and administrative procedures would imply for the cost of doing business. Complex ROOs raise transactions costs for firms. With the rapid spread of FTAs throughout Asia, multiple ROOs in overlapping FTAs pose a severe burden on SMEs, which have less ability to meet such costs. Originally termed a “spaghetti bowl” of trade deals, this phenomenon has become widely known as the noodle bowl effect in Asia.

Forming a Regionwide FTA
- There is increasing recognition in Asia of the merits in forming a regionwide FTA as a means to consolidate the plethora of bilateral and plurilateral agreements. - Such an FTA would confer various economic benefits: increase market access to goods, services, skills, and technology; increase market size to permit specialization and realization of economies of scale; facilitate the FDI activities and technology transfer of MNCs; and permit simplification of tariff schedules, rules, and standard.

Income Effects of Alternative Scenarios Compared to 2017 Baseline (percent change in GDP by economy)
GDP = gross domestic product, ASEAN = Association of Southeast Asian Nations, EAFTA = East Asia Free Trade Area, CEPEA = Comprehensive Economic Partnership for East Asia. Source: Kawai and Wignaraja (2009a) based on the computable general equilibrium model used in Francois and Wignaraja (2008). Asian FTAs: Trends, Prospects, and Challenges |

Political Economy Considerations of FTA Consolidation in Asia
Unclear Future - Even if the consolidation of FTAs into a regionwide agreement—whether in the form of an EAFTA among the ASEAN+3 countries or a CEPEA among the ASEAN+6 countries— yields large economic gains to Asia, the future path seems unclear. - Several political economy considerations may impinge on the outcome. For instance, the PRC has been a strong supporter of an EAFTA, while Japan has put more emphasis on a CEPEA. In addition, political rivalry over FTA leadership in Asia may hinder any such joint venture. - Given the role of the US in Asia as a security anchor for many countries, one may argue that excluding the US from the Asian integration process is not viable from a political perspective. - The rising importance of European markets for many Asian economies suggests that involving Europe may also make sense.

Building Blocks for Wider Agreements
- Due to a rise in the number of players in official negotiations for FTAs, creating an encompassing FTA in Asia could become more complicated. This suggests that forming a CEPEA would be more complex than forming an EAFTA and that forming an FTAAP would be even more complex than forming a CEPEA. - The first step toward consolidation of various FTAs might be to create preconditions—or building blocks—for a regionwide FTA, like an EAFTA or a CEPEA, and then to develop further conditions toward a trans-regional FTA, such as an FTAAP or an FTAAE. - In this process, ASEAN will likely act as Asia’s integration hub or convener. The “plus-three countries”—the PRC, Japan, and the Republic of Korea—would then need to coordinate their trade and FDI regimes.

EAFTA (East Asia Free Trade Agreement)
- Background Asian financial crisis of 1997 First ASEAN+3 Summit Meeting East Asia Vision Group (EAVG) East Asia Study Group (EASG) The Joint Expert Group on the feasibility of an EAFTA - Rationale for Forming EAFTA Defensive Reaction to the Worldwide Rise of Regionalism To Prevent the “Spaghetti Bowl Effect” Deepening Interdependence Vision of an East Asian Community - EAFTA as a Platform to FTAAP If EAFTA is pursued and successfully accomplished, there is room to expand EAFTA to a bigger integration, which is “FTAAP” in the future. - FTAAP toward the Global Free Trade

EAS (East Asia Summit) - The East Asia Summit (EAS) is a forum for dialogue on broad strategic, political and economic issues of common interest and concern with the aim of promoting peace, stability and economic prosperity in East Asia. It is an open, inclusive, transparent and outward-looking forum, which strives to strengthen global norms and universally recognized values with ASEAN as the driving force working in partnership with the other participants of the East Asia Summit.

ASEAN + 3 The leaders of Japan, China, and Korea were invited to the informal ASEAN leaders' meeting in December 1997, in the midst of the Asian financial crisis, which de facto initiated the ASEAN 3 process. Many ministerial processes have been created within the ASEAN 3 framework, including processes for foreign affairs; economy and trade; macroeconomics and finance; environment, energy, health, labor, science, and technology; and social welfare. China regards ASEAN 3 as a natural grouping for East Asia's trade and investment cooperation and has proposed an EAFTA. - The ASEAN 3 leaders agreed in 2004 that the establishment of an "East Asian Community" is a long-term objective and affirmed the role of ASEAN 3 as the main vehicle for this eventual establishment. The East Asia Study Group (EASG 2002) had identified seventeen concrete short-term measures and nine medium- to long-term measures to move East Asian cooperation forward. The leaders then endorsed in 2003 the implementation strategy of the short-term measures--to be realized by and in 2004 encouraged a speedy implementation of the short- and long-term measures. Some key long-term measures relating to economic, trade, and investment integration, with the economic community in mind, include: * formation of an East Asian Free Trade Area (EAFTA); * establishment of an East Asia Investment Area by expanding the AIA; and * promotion of investment by small- and medium-sized enterprises (SMEs).

ASEAN + 6 - ASEAN 6 (13 ASEAN 3 members and Australia, India, and New Zealand) has met three times since December 2005, focusing on wider issues including avian flu, education, energy, finance, and natural disasters. Japan regards ASEAN 6 as an appropriate group for East Asia's trade and investment cooperation and has proposed a CEPEA - Future economic cooperation in East Asia, leading to an East Asian economic community, is likely to evolve around the multiple groupings under ASEAN, ASEAN 1's, ASEAN 3, and EAS (or ASEAN 6). It is likely that the ASEAN Economic Community, to be created by 2015, will be the hub of East Asian economic integration, thereby securing ASEAN as the driving force, ASEAN 3 as the main vehicle for an eventual East Asian economic community, and the EAS as an integral part of the overall evolving regional architecture

APEC - APEC has encouraged trade and investment liberalization in a voluntary and unilateral fashion within an Asia-Pacific context. Australia played a major role in promoting APEC as a trans regional forum with the basic principle of "open regionalism". One of its most important achievements was to induce unilateral, voluntary trade liberalization of the then non-WTO members, such as China and Taipei, China. But APEC's prominence appears to have declined since the Asian financial crisis because of its inability to effectively respond to the crisis, and as its members have pursued bilateral and sub regional FTAs. Open regionalism can remain important, nonetheless, if APEC members take APEC--and WTO--principles as a liberalization infrastructure for their FTAs and attempt to go beyond them.

FTAs of China China and FTAs - 9 FTAs; 30 under discussion/negotiation
- China-ASEAN: increasing complementary trade but competing sectors - Encouraging results on tariffs and rules of origin; WTO-compatible but not WTO-plus; services and investment? - WTO-plus FTAs with HK and Macau - Negotiations with Aus and NZ - PTAs with SACU, India and others? - Overall: pragmatic, eclectic approach - Danger of politics-driven trade-light FTAs (unlike China in WTO); but stronger FTAs in east Asia

Korea’s FTA Partners

Global FTA Network of Korea

Korea’s Trade Volume Under FTAs
- With completion of the FTA network within 5 years, Korea’s trade ratio with FTA partners will increase up to 76%.

 Korea’s Motivation of FTAs
- Korea: heavily dependent upon foreign markets in its development process - Trade openness in 2005: Korea(65.7%) vs. NAFTA(25.8%), Japan (24.3%), EU(32.2%), China(59.3%), ASEAN-7(154%) - Strongly supported multilateral trade negotiations as Korea has been one of the greatest beneficiaries of the GATT/WTO, but just ignored FTAs - Regionalism revived and making fortress in foreign markets, so urgent need to change its trade policy to take new markets and not to lose existing ones.

Characteristics of FTAs of Japan
Focus on East Asia (East Asia-wide FTA) => shifting toward broader coverage (India, Chile, Gulf State etc) Comprehensive framework: WTO-plus +Economic Partnership Agreement (FTA, FDI, Economic Cooperation ) +Free movements of goods, funds, people, and information (FTA-plus) +System harmonization (e.g. Intellectual property right (IPR) , competition policy) Recent changes: +Increasing importance of speed +Bilateral FTAs with ASEAN members to regional FTA with ASEAN

- Comprehensive framework: WTO-plus Economic Partnership Agreement
Japan’s FTA Strategy - Focus on East Asia - Comprehensive framework: WTO-plus Economic Partnership Agreement (FTA, Economic Cooperation: Policy coherence) - System harmonization (technical standard, etc) Japan-Singapore EPA Liberalization: goods trade, service trade, FDI, government procure’t, etc. - Facilitation: trade, FDI, mobility of natural persons, etc. - Cooperation: science and technology, information technology, human resource development, tourism, etc. * Obstacles to FTAs for Japan - Liberalization in agricultural imports - Labor mobility

Japan’s Role Play active role in promoting FTAs by liberalizing agricultural and labor markets. Actively engage in comprehensive and effective economic cooperation in human resource development, energy use, environmental problems, food security, infrastructure development, etc. - Overcome historic problems with China and Korea Formulate a roadmap toward EAFTA with cooperation with other East Asian countries. Lead discussion to formulate a roadmap toward EAFTA with cooperation with other East Asian countries.

Enacted relatively a large number of FTAs
 Current Status of Japan’s FTAs Enacted relatively a large number of FTAs Low country coverage in terms of trade: FTA coverage ratio Low tariff elimination: lower than 90% in terms of tariff lines, whereas for the US, higher than 95%  Objectives Expand export market for Japanese firms Improve investment environment for Japanese firms Obtain energy and natural resources Promote structural reform in Japan Improve and establish good relationship Provide economic assistance to developing countries

Japan’s FTAs (as of August 2013)

FTA Trade Liberalization Ratio (%)

Faced with many difficult challenges, Japan has to open up its economy and carry out structural reforms, in order to achieve economic growth or to maintain high living standard, to contribute to economic growth in Asia-Pacific and in the world. WTO liberalization being stalled, free trade agreements (FTAs) are second-best solution for promotion of trade and FDI Japan can gain a lot from FTAs not only in East Asia but also with countries in other parts of the world such as the US, the EU, and Latin American countries.

Japan should play active roles in establishing region-wide FTAs: TPP, RCEP by liberalizing its market Then expand these FTAs by merging with other FTAs, leading to global trade liberalization FTAs (particularly TPP) face opposition from the agriculture sector Various measures including gradual phase-in liberalization, and temporary assistance (safety net) to negatively affected workers can moderate the negative impacts during the process of transition Need strong political leadership to promote FTAs, particularly TPP

Economic Partnership Agreement EPA: Japan’s FTA Strategy

Direction of Japan’s EPA strategy in the Asia-Pacific Region
・ ASEAN+6=CEPEA=East Asia Summit ・Integration-oriented approach ・Facilitation/cooperation agenda East Asia Completion of bilateral FTAs/EPAs FTAAP ・Pacific-rim countries; NAFTA et al. ・Rule-oriented approach ・Liberalization agenda (agriculture) ・Regulatory reforms Asia-Pacific TPP

Observatory Characteristics
Recent and Interrelated Developments: - First, Asia’s advanced production networks, which underlie its spectacular global export success over the past several decades, have deepened regionally. Production processes have been broken down into smaller processes, with each process located in the most cost effective economy, thereby further improving efficiency. - Falling regional trade barriers and logistics costs, along with technological progress, underlie this trend. Intraregional trade in Asia has increased significantly, particularly in the production of parts and components, and this trend may continue with further regional liberalization via FTAs.

- Asia—a relative latecomer to using FTAs as a trade policy instrument—is now at the forefront of global FTA activity with 61 concluded FTAs. The Association of Southeast Asian Nations (ASEAN) is emerging as the hub for Asia’s FTAs, with other major Asian economies joining the FTA bandwagon. Policy support for the deeper integration of production networks, regional integration efforts in other major markets, and the 1997–1998 Asian financial crisis have spurred the growth of Asian FTAs. Potential Problems - Issues and concerns highlighted include low FTA preference utilization, a “noodle bowl” problem of criss-crossing agreements that potentially distort trade toward bilateral channels, excessive exclusions and special treatment in FTAs, and the possibility that the multilateral trading system may be progressively eroded. FTAs are a relatively new phenomenon in Asia and a dearth of empirical evidence, particularly with respect to patterns of Asian FTAs and business impacts, has made it difficult to verify the validity of these concerns.

The map shows FTAs signed or under negotiation in January 2006.
East Asia is defined here as the 10 ASEANs, China, Japan and Korea. Source Richard Baldwin 2006

FTA-led Regionalism in Asia
- The large economies of Northeast Asia—the People’s Republic of China (PRC), Japan, and the Republic of Korea—are at the forefront of efforts to use FTAs to pursue their respective regional and global trade strategies. Meanwhile, ASEAN members are also increasingly entering into FTAs as a means to expand trade and increase their participation in Asia’s advanced production networks. - The stalled World Trade Organization (WTO) Doha Round of trade negotiations means that FTAs are a vehicle to support the deepening of production networks through trade and investment liberalization. - Business will need to learn to export more effectively under a regional trade regime anchored on FTAs. The focus for policy makers is how best to minimize the costs of Asian FTAs while maximizing their benefits .

Building Integrated Financial Markets
Asia’s financial sectors/markets have not kept pace with the region’s impressive achievements in economic growth and poverty reduction - Gap need to be closed as the region graduates to middle income status - Building robust financial markets, especially capital markets require national-level reforms and restructuring - Regional-level initiatives at building integrated financial markets IS increasingly important - Need to consolidate the regional financial markets initiatives under the regional forums -- ASEAN,ASEAN+3, EMEAP, and APEC

Building Integrated Financial Markets
- The ASEAN+3 could take the lead in the region’s financial integration initiatives Australia and New Zealand as developing countries with small but robust financial markets India has experience in financial market development could play important complementary roles A strong regional financial market gives a much more balanced global financial system  The challenge is of building an integrated Asian financial market with minimum supranational institutions and maximum national freedom in policy making

Rising intra-regional trade and deepening macroeconomic interdependence in East Asia make a case for intra-regional exchange rate stability - Monetary integration is much more gradual than trade and financial integration, partly due to the absence of an anchor currency (unlike German mark in Europe) - It requires delegation of policy autonomy to a regional arrangement, mustering political support would be much more difficult - One option for a small group of countries is to anchor their exchange rate polices on some version of a (common) basket currency system - Once these countries gain enough experience in running exchange rate system, more countries could join such a system paving the way for a region-wide basket currency regime - Chiang Mai Initiative - regional reserve pooling system at bringing about intra-regional exchange rate stability

Regional Economic Cooperation and Integration: Asia’s Future Development Strategy
Pragmatic national economic institutions and policies will continue to play a key role in navigating the Asia’s economic success story Asia continue to be open to the global economy - Strategy underpinned Asia’s dramatic economic success over the decades - Regional-level initiatives will increasingly complement national level polices as well as Asia’s global engagement. - Regional cooperation and integration - therefore, needs to be addressed in a systematic way. Asia to look upon Europe for charting the course of its regional integration efforts/agenda - Both to draw the right lessons and to avoid mistakes - Europe – a global benchmark on regional integration

Asia Integration Initiatives Different From Europe
Sequencing of European integration – trade integration first, monetary integration next, and financial integration subsequently - Such sequencing was partly necessitated by the widespread trade barriers - Barriers both globally and within Asia, especially East Asia, are much less than when Europe started it integration initiatives - Capital controls are not as universal today. The move to freer capital flows is likely to accelerate in the coming years - Overall, unlike Europe, Asia may have to focus on financial integration even as it completes the remaining agenda on trade integration - Given general lack of appetite and compelling preconditions for monetary integration, Asia have to proceed slower on monetary integration than Europe

Case: Association of Southeast Asian Nations
ASEAN - Economic, social, and cultural development - Safeguard economic and political stability - Serve as a forum to resolve disputes - Pop: 500 million - GDP: $740 billion - Members: 10 - General Cooperation - Began: 1967

South and Southeast Asia’s Concluded Free Trade Agreements, 2013
Reprinted from: Asian Development Bank Institute p.6.

Regionalization for ASEAN
Globalization ICT has allowed wide information access. Goods and services can move cheaper thanks to cheap transportation and ICT. The world is more borderless. In a flat world, competition searches for lowest cost. Convenience of flows of information, goods, services, and people within the region Relatively similar psychology and national interest within region Regionalization Localization National borders still have economic meaning. National markets exist and are defined by psychology and politics. National economic and political setbacks can threaten globalization.

Opportunity Threat The Rising East: Threat or Opportunity?
ASEAN Integration Individual countries in ASEAN are mediocre compared to China and India ASEAN is the only region capable of being in the driver seat of the Greater East Asia integration* * ASEAN is the first to seat ASEAN countries together with China, India, Japan, South Korea, Australia, and New Zealand, as well as Russia (as an observer) in one table during the first East Asia Summit.

What does ASEAN Integration Mean?
All barriers to the free flow of goods, services, capital, and skilled labor are removed Tariffs will be eliminated and non-tariff barriers will be gradually phased out Rules and regulations will be simplified and harmonized ASEAN investors will be permitted to invest in sectors formerly closed to foreigners and the services sector will also be opened up Applicable international standards and practices are followed, and policies on intellectual property rights and competition are put in place Regional infrastructure will be more developed with the expansion of transportation, telecommunications and energy linkages The region will become a more level playing field

Corporate Trends Supporting ASEAN Integration
Global trends in manufacturing indicate a shift towards adopting flexible production techniques and integrated production chains It is no longer cost effective for all manufacturing activities to be done in in-house or in a single country MNCs are integrating their manufacturing activities across several locations MNCs are not only seeking large consumer markets but also regional sites where they can establish efficient production networks Regional Production Base

A Balanced Approach is Needed
 Benefits to MNCs Targeting more sales volume in the ASEAN market Components procurement on an ASEAN-wide basis More product specialization to achieve economies of scale Greater emphasis on profitability using ASEAN-wide operations  Benefits to Local Companies More export opportunities to ASEAN market ASEAN-wide expansion opportunity for corporate growth strategy Technology and financial support opportunities from MNCs ASEAN-wide pool of talent A Balanced Approach

Asia Pacific Economic Cooperation
APEC: Group of 21 nations ringing the Pacific Ocean that accounts for over half of world trade - Not designed as a free-trade bloc - Strengthen multilateral trade system - Liberalize trade and investment rules

TPP vs. RCEP □ Positions in FTAAP FTAAP: Long-term goal of regional economic integration in Asia-Pacific TPP and RCEP are both pathways to FTAAP TPP and RCEP should be complementary □ Issue Coverage TPP: comprehensive coverage not only market access, services, and investment but also labor, environment, and cross-cutting “horizontal issues” such as regulatory coherence, competitiveness and business facilitation, development and Small and Medium Enterprises (SMEs) RCEP: limited coverage, trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, other areas

□ Objectives TPP: To establish a high standard, regional agreement that addresses new and emerging issues, incorporates new elements reflecting our values and priorities, and responds to the 21st century challenges our citizens face. (USTR website) RCEP: To support and to contribute to economic integration, equitable economic development, and strengthening economic cooperation among the participating countries (Guiding Principles and Objectives)

RCEP The RCEP is an agreement initiated by ASEAN and now by China. It is newer than the TPP. Contrary to the TPP, targeting to achieve a higher level of FTA, the RCEP fundamentally aims at the phased and progressive opening. Formally agreed in 2012 to launch negotiations on the RCEP, which aims to be the largest free trade bloc in the world, comprising all 10 ASEAN nations and the six other countries with which the group has free trade agreements- China, India, Japan, South Korea, Australia and New Zealand. Negotiations are expected to conclude by the end of 2015. All 16 members of the ASEAN+6 decided to join RCEP talks. However, considering differences in their economic development and industrial structure, it looks hard to establish the RCEP. RCEP can be affected by other FTAs, including CJK FTA and the TPP.

TPP The TPP is a set of trade and investment negotiations among 11 countries (US, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam). Originally, the 2006 Trans-Pacific Strategic Economic Partnership (P-4) was formed by four countries (Brunei, Chile, New Zealand, and Singapore). Once finalized, the TPP is intended to remain open to additional parties-eventually becoming the core of a free trade area for the Asia-Pacific. In 2013 Japan announced it will join the TPP. Economic integration in the TPP is deeper than that of the RCEP. Participation in the TPP requires the highest level of openness especially in the service market, including intellectual property rights, law, labor, and agricultural and manufacturing sector. The TPP and the RCEP are organized in a different manner. However, there are positive possibilities of integration as their gap reduces in terms of economic size and deviation, trade openness, and the level of openness.

East Asian Wide FTA Progress
ASEAN+3(EAFTA): ASEAN+CJK ASEAN+6(CEPEA): ASEAN+CJK, India, Australia, New Zealand Singapore, New Zealand, Brunei, Chile RCEP: ASEAN+CJK, India, Australia, New Zealand TPP: Brunei, Chile, Peru, Singapore, New Zealand, U.S., Malaysia, Vietnam, Australia, Canada, Mexico 2004 China Proposal 2011 ASEAN Proposal 2006 Japan Proposal 2010 U.S. Joined 2013 Japan Joined 2006 P-4

Comparison of Economic Size of TPP and RCEP (2011)
GDP ($ billion) Population (million ) Export Import Trade TPP Except Japan 20,596.8 (24.9) 656.8 (9.0) 3,456.8 (19.4) 4,221.5 (23.0) 7,678.3 (21.2) Including Japan 26,463.9 (32.0) 784.7 (10.8) 4,281.2 (24.0) 5,076.3 (27.7) 9,357.5 (25.9) RCEP 19,703.7 (23.8) 3,388.1 (46.6) 5,138.8 (28.8) 5,045.1 (27.5) 10,183.9 (28.1) EU 17,551.4 503.4 (6.9) 5,855.3 (32.8) 6,080.4 (33.1) 11,935.7 (33.0) Note: (%) indicates percent of world share Source: Choi, et al

Intra-regional Trade Share in the World (2011)
( % ) Sources: Based on Choi and Lee. 2013

TPP World Trade: Share of Total World Trade by Selected Trade Region
Sources: IMF E-Library Data, Direction of Trade Statistics (DOTS) (Borrowed from: Barfield )

U.S. Position - FTAs with both the Asia-Pacific region (TPP) and Europe (TAFTA) will yield considerable economic and political benefits to US. - TPP and TAFTA are the most realistic ways to reclaim U.S. economic leadership and to highly increase U.S. exports. - Achieving TPP and TAFTA has deep strategic implications. Both would reaffirm liberal norms and a leading U.S. role in setting the global rules and standards. - Japan’s participation in the TPP will boost the agreement’s economic and strategic significance. Without Japan’s participation, the market access opportunities for the U.S. are limited.

benefit from the TPP is limited.
The recent change of US attitude towards China is based on the perception that unless China, the world 2nd top economy, joins TPP talks, the entire real benefit from the TPP is limited. - The most fundamental challenge to the TPP is that it may not be attractive enough to induce China to sign in the TPP, which would lead China to react by accelerating its own trade initiatives in Asia. The TPP is an economic and diplomatic game-changer. US should conclude and implement a high-quality TPP agreement as soon as possible. Strategy

China Position - China preferred ASEAN+3 approach, but accepted ASEAN+6 (RCEP). It wants to play the leading role of RCEP. - In addition to the economic profits through free trades, China takes care about the political and security parts in East Asia. The TPP is considered to create a new blockade against China in this region. - However, it may consider joining TPP as the relationship with US turns to be ‘engagement.’ - The recent indication of China to consider joining TPP intends to prevent the creation of the great Asia-Pacific economic bloc, excluding China, headed by the US and strengthened by Japan’s joining.

Strategy - China’s strategy is to create China-central regional economic order and geopolitical gravity through FTAs and regional integration. - China’s being excluded from the TPP will undercut the East Asian regional integration process that China has been propelling for over a decade, posing a great challenge to China’s rise in the future. - Considering the current status of China, it may be hard for Beijing to join the TPP in reality, regardless of its informal positive indication.

Japan Position - The TPP will provide new market access opportunities for increasing Japanese export and driving domestic reform. - Japan’s participation in the TPP is expected to enhance the economic and strategic level of the TPP in Asia-Pacific region, and cause changes in the competition structure for economic integration in East Asia. - Japan’s participation will affect to the negotiation of the RCEP and CJK FTA, which both are in the competition relationship. - Japan’s participation in the TPP will not only lead to the creation of the world’s largest free-trade zone, but also enhance the economic position of the TPP. - GDP share of US and Japan reaches over 90% out of total GDP of all TPP participants. In fact, th TPP is considered as US-Japan FTA.

 Strategy - In 2013 Japan announced to participate in the TPP talks with an emphasis on its leading role to establish trade rules in the Asian-Pacific region and necessity to build new economic bloc with US. - Japan’s declaration of joining the TPP talks means TPP becomes a new priority in Japan’s wide-area FTA policy.

Korea Position - In the conflict between the China-led RCEP and the US-led TPP, it is expected that there are numerous barriers in the CJK FTA process in the future. - In the Asia-Pacific regional perspective, the TPP should be considered as a multilateral FTA, which aims at higher level of free trade in a wider region. - Japan’s participation in the TPP is expected to affect the speed of CJK FTA process as well as it can be a turning-point in Japan’s foreign trade strategies. - Korea does not have a structural leadership that can exert hard power and influence regional integration process. The RCEP is expected to give more leverage to Korea than the TPP.

Korea Strategy - Japan’s TPP declaration intends to avoid the significant damages from un- participation in the TPP and is aimed to hold back Korea’s aggressive FTA strategies. - In response to Japan’s participation in the TPP, Korea should examine closely about the benefit of joining the TPP, although already Korea-US FTA is effective. - However, the highest priority is Korea-China FTA, then RCEP. - Because of Japan’s recent precarious diplomacy, Korea became less interest and confident in CJK FTA.

Korea’s Evaluation of RCEP and TPP
Criteria Evaluation Market and Growth RCEP ≈ TPP Production Network RCEP > TPP Level of Integration and Implementation RCEP < TPP Macroeconomic Benefit Political Benefit Overall Sources: Choi and Lee, 2013, Revised.

Dynamics of Economic Integration in East Asia
RCEP (16 nations) (Regional Comprehensive Economic Partnership) CJK FTA (3 nations) Korea China Japan Japan TPP (12 nations) (Trans-Pacific Partnership) ASEAN (10 nations) Cambodia Indonesia Singapore Laos Thailand Brunei Myanmar Philippine Vietnam Singapore Brunei Malaysia Vietnam India Chile The U.S. Peru Canada Mexico Australia New Zealand Taiwan

Proposals for Regional Integration in Asia and Pacific
FTAAP 21 RCEP 16 PNG, Russia Taiwan Canada Chile Mexico Peru United States Australia Brunei Malaysia New Zealand Singapore Vietnam Cambodia India Laos Myanmar China and Hong Kong Indonesia Japan Koea Philippines Thailand TPP 11 TPP 16 Sources: Peter A. Petri, et al

U.S. vs. China - If containing China is the main objective of US’ joining the TPP, it is myopic and misleading. Reaching 40% of the world GDP, the TPP can strengthen its economic power more with China, which is the 2nd in world GDP and is at the center of global supply chains. - If China is blocked from the TPP, it may send a negative message to prospective member, who may fear that joining TPP is the same as being listed as joining in the anti-China camp. - The TPP and RCEP are now on the process of creating Asia-Pacific economic community. Therefore, in order to achieve the goal, it is necessary for US and China to make inter-cooperation and understanding each other.

Prospects US and China will enter the cooperation mode and eventually the RCEP and the TPP will be merged, but it will take a much long time. China will become a real driving force in East Asian integration whereas Japan would be stressed to maintain its past geopolitical influence in East Asia. Korea will focus on Korea-China FTA first, then the RCEP, and finally the TPP. Korea may lose interest in CJK FTA. Taiwan will focus on the ECFA first, then more bilateral FTAs, and either the RCEP or the TPP according to the attitude of these towards Taiwan.

Other concerns Reflection: Some Issues Related to Asian RTAs
- Trade in Asia-Pacific has been more market-driven (growth-driven?) than PTA-driven: sustainability? - Forging agreements with partners outside the region kept Asia as a relatively open bloc: helping global economy? - RTAs in Asia not genuine “economic integration”: weak regional institutions and lack of incentives for convergence? - Given changes in global economy, is there a need / possibility for stronger regional trade governance / integration in Asia? Reliance on market-led process of integration explained by progress in economic liberaliztaion and the widespread adoption of market-oriented policy frameworks The need for closer regional macroeconomic surveillance in the face of common shock and synchronized business cycles, as well as the objective of removing non-traiff barriers to cross-border and financial flows, may call for more robust institutional arrangements in the period ahead. Europe- sustained political will and institutional arrangements that locked in progress in regional integration

References ADB. 2012. “Asian Economic Integration Monitor” (PDF).
Barfield, Claude “Taiwan and East Asian Regionalism”. American Enterprise Institute, Washington, DC. (Google) Choi, Byungil, et al “TPP, Now Is the Time to Decide: Japan’s Participation in TPP and Korea’s Strategy”. KERI Brief vol.13-9. (Korean) Kawai, Masahiro, and Ganeshan Wignaraja Asian FTAs: Trends, Prospects, and Challenges. ADB Economics Working Paper Series. (Google: pdf) Urata, Shujiro “Proliferation of FTAs in East Asia”. (Google)

Choi, Byungil and Lee, Kyunghee.2013. Korea’s FTA Strategy from the
Perspective of East Asian Wide FTA Formation. KERI. (Korean) Petri, Peter A., et al “The Trans-Pacific Partnership and Asia-Pacific Integration: a Quantitative Assessment”. (Google) Sa, Dongchul “Korean Perspectives of Japan’s Participation in TPP”. POSRI report. (Korean) Scolly, Robert APEC’s Regional Economic Integration Agenda and the Evolution of Economic Integration in the Asia-Pacific Region. APEC Study Series KIEP. Watanabe, Yorizumi “Strengthening and Institutionalizing Japan – EU Economic Relations”(PPT).

EAE: Regional Integration towards “One Asia”

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