1. Conference on Asia-Pacific Regional Economic Integration and Architecture (Auckland, New Zealand) The Assessment of Asian Economic Integration and Perspectives for Greater Economic Integration Fukunari Kimura Professor, Faculty of Economics, Keio University Chief Economist, Economic Research Institute for ASEAN and East Asia (ERIA) 2010.03.251

2. 1. Introduction The completion of (ASEAN+1)x6 hub-and-spoke FTA networking in extended East Asia Overlapping bilateral FTAs: pros and cons, possible connection with “multilateralizing regionalism” FTAs in East Asia: practical and pragmatic The following tries to assess the accomplishment of FTA networking and discuss perspectives for greater economic integration. 2010.03.252

3. 2. 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 (Figure 1) – 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 (Table 2) – Agricultural protection reduces the degree of freedom. 2010.03.253

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7. 3. 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 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 (Tables 3, 4) 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) (Table 5) 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. – Regionalism promoting multilateral liberalization? 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. 2010.03.257

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12. 4. 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 2001-2007 – Both intra-East Asia exports and exports to ROW – “Trade openness” enhanced in East Asia (Figures 2, 3, Table 7) Direct effects of the removal of trade barriers (esp. AFTA) The reshuffling of production sites responding to trade liberalization (Table 8) More than proportional growth of demand for traded goods – Non-homothetic tastes, growth of middle class (Figures 4-6) Assessment of FTA networking in a wider scope is required. 2010.03.2512

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17. 651.54 million (54%) 235.76 million (20%) 248.46 million (21%) 62.82 million (5%) 256.68 million (20%) 451.08 million (35%) 290.90 million (22%) 98.16 million (8%) 207.68 million (16%) > $12,000 $6,000 – 12,000 $3,000 – 6,000 $1,800 – 3,000 < $1,800 > $12,000 $6,000 – 12,000 $3,000 – 6,000 $1,800 – 3,000 < $1,800 19952005 Figure 4 Population by income groups: China (US dollars; 2005 PPP adjusted; annual total income of a family with four members) Middle class Below poverty line Total population: 1,204,850,000 Total population: 1,304,500,000 2010.03.2517

18. 153.53 million (36%) 113.32 million (26%) 96.80 million (23%) 43.25 million (10%) 22.24 million (5%) 124.47 million (25%) 167.83 million (34%) 79.97 million (16%) 35.15 million (7%) 93.68 million (19%) > $12,000 $6,000 – 12,000 $3,000 – 6,000 $1,800 – 3,000 < $1,800 > $12,000 $6,000 – 12,000 $3,000 – 6,000 $1,800 – 3,000 < $1,800 1994-19962004-2006 Figure 5 Population by income groups: ASEAN (excl. Singapore, Brunei, and Myanmar) (US dollars; 2005 PPP adjusted; annual total income of a family with four members) Middle class Below Poverty line Total pupulation: 429,140,000Total population: 501,110,000 2010.03.2518

19. 444.28 million (49%) 284.82 million (32%) 143.94 million (16%) 21.93 nillion (2%) 358.68 million (33%) 220.30 million (20%) 41.10 million (4%) 449.63 million (42%) > $12,000 $6,000 – 12,000 $3,000 – 6,000 $1,800 – 3,000 < $1,800 > $12,000 $6,000 – 12,000 $3,000 – 6,000 $1,800 – 3,000 < $1,800 19932004 Figure 6 Population by income groups: India (US dollars; 2005 PPP adjusted; annual total income of a family with four members) Middle class Below Poverty line Total population: 888,320,000Total population: 1,079,700,000 2010.03.2519

20. 5. Perspectives for greater economic integration The current system of overlapping FTAs seems to gain a certain level of appreciation; economic/political momentum toward plurilateral 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. 2010.03.2520