The Future of Regional Cooperation Architecture in Asia ---Overcoming Alphabet Soup, Variable Geometry and Noodle Bowl Chia Siow Yue Singapore Institute of International Affairs Asia After the Global Financial and Economic Crisis SER 2009 Conference, Singapore 6-8 August 2009

Rise in Regionalism in Asia Asian regionalism is on the rise : Growing interdependence in trade and investment flows. Rapid growth of production networks Integrating financial markets. Growing financial and monetary cooperation Integrating physical and communications infrastructure Integrating movement of tourists, manpower and students Surge in regional and bilateral FTAs/EPAs/CECs Cooperation in delivering regional public goods and mitigating global and regional public bads ---environment, natural disasters, pandemics, food-energy-water security, terrorism, security Notwithstanding the outcome of the Doha Round, regional and bilateral FTAs will continue to grow in the region.

Plurilateral and Bilateral FTAs in East Asia (January 2009) CountryPlurilateralBilateralProposedTotal FTAs Brunei81413 Indonesia82616 Malaysia97319 Philippines71412 Singapore Thailand99624 Cambodia7029 Laos81211 Myanmar80210 Vietnam72211 China Japan South Korea491023

Factors in the FTA Surge…1 Factors are both political and economic, intra-regional and extra-regional dynamics. Political: Thawing political relations after the Cold War. Asian Financial Crisis led to cooperation in the face of a common threat. Extra-regional challenges and developments Doha Round and APEC liberalization Regionalism in North America and Europe Current global crisis

Factors in the FTA Surge…2 Intra-regional dynamics Rapid growth of intra-regional trade and investment flows Development of regional production networks and supply chains. Asian financial crisis led to regional financial and monetary cooperation --- Chiang Mai Initiative, Asian Bond Market Initiative and Regional Surveillance Mechanism. National policies not adequate. Regional cooperation needed to deliver regional public goods and mitigate global and regional public bads

The Present Regional Architecture…1 Numerous regional institutions, forums and economic cooperation and integration agenda. Gives rise to dense network of overlapping and multiple initiatives. Motivated by political and economic considerations. Most are ASEAN-centric ASEAN10 –political-strategic, economic, social ASEAN+1-- economic ASEAN+3 (EAFTA, CMI) –economic, financial ASEAN+6 (CEPEA) – economic East Asia Summit (EAS) – political-strategic, economic SAARC and South Asia FTA (SAFTA) and APEC Forum Numerous bilateral FTAs

ASEAN Economic Cooperation and Integration ASEAN formed in Since then, dense network of meetings and work agenda First phase of ASEAN economic cooperation and integration started in 1992 with AFTA, then AFAS in 1995, AIA in Spurred by external challenges. Second phase began in 2003 with the ASEAN Economic Community (AEC). Again spurred by external challenges. Goal of an integrated single market and production base by 2015, with equitable development, narrowed development gap, and open to the global economy. ASEAN+1 agreements with China, Japan, South Korea, Australia-New Zealand and India. Also with EU and GCC. No ASEAN-US

Case for a Region-wide FTA…1 Case for region-wide economic cooperation and integration architecture Geopolitical: Usefulness of regional cooperation and integration in reducing geopolitical tensions and conflicts. Example of ASEAN. A more cohesive and stronger voice in international organizations and fora Economic: Larger benefits and lower costs of region-wide versus sub- regional and bilateral FTAs Facilitate regional production networks and supply chains by resolving the noodle bowl problem Likely strong resistance from countries and groups that oppose economic liberalization and regional integration

Case for a Region-wide FTA…2 Defining the region and membership East Asia, Asia, Pan-Asia, Asia Pacific ---geographical, geopolitical, or economic criteria? Narrow definition of East Asia has excluded Hong Kong and Taiwan (EAFTA). Broad definition of East Asia has included Australia, New Zealand and India (CEPEA) Indian Prime Minister called for a Pan-Asia grouping. Would that include the whole of South Asia (SAARC and SAFTA)? Choice of wider membership versus deeper integration: too large a grouping lacks like-mindedness and results in shallow integration with large exclusion lists.

Challenges of Multiple, Overlapping Regional Architecture…1 Multiple and overlapping FTAs with different provisions, rules and schedules result in complexities and noodle bowl effect. There is no common template even for FTAs with the same partner. WTO inconsistency ---commitments to GATT Article XXIV or Enabling Clause Different tariff phase-out schedules and end-dates Different product exclusions Different service exclusions (sectors and modes of supply); positive versus negative lists Different provisions and restrictions for foreign investors Different coverage of WTO-plus issues ---facilitation, investment, IPR, competition policy, government procurement, labor mobility

Challenges of Multiple, Overlapping Regional Architecture…2 Multiple and divergent rules of origin and documentation requirements ROOs reflect degree of liberalization for trade in goods Inconsistent ROOs across FTAs lead to fragmentation of regional markets. Adoption of common ROO crucial to promote convergence but difficulty on best type of ROO ---RVC, CTC, product specific rules? Low utilization of FTA tariff preferences Troublesome customs forms and certification requirements Consensus on common ROO across FTAs difficult, since the more restrictive provisions reflect deeply entrenched industry interests

ASEAN+3 and/or ASEAN+6? …1 Contest between ASEAN+3 (EAFTA) and ASEAN+6 (CEPEA) EAFTA proposed by East Asia Vision Group in CEPEA proposed by Japan in 2006 Both are comprehensive economic partnerships with trade and investment liberalization and facilitation, Singapore issues, and regional cooperation and functional cooperation in wide areas ASEAN+3 membership of ASEAN10, China, Japan and South Korea Started with financial and monetary cooperation during Asian Crisis. EAFTA feasibility study launched in 2005 Process towards EAFTA ---negotiation among 13 economies, or ASEAN10 and China+Japan+South Korea? However, no FTA agreement yet among China-Japan-South Korea

Integrating Asia Indicators (2007) EconomyPopulation (mill)GDP (US bill)GDP p.c..(US$)Trade/GDP (%) Brunei Indonesia Malaysia Philippines Singapore Thailand Cambodia Laos Myanmar Vietnam China Japan South Korea Hong Kong Taiwan India Total above

ASEAN+3 and/or ASEAN+6? …2 ASEAN+6 membership: Identical to East Asia Summit, that is ASEAN+3+3 (Australia, New Zealand and India). Merit of including both a rising China and a rising India, resulting in the largest economic bloc of over 3 billion population in the world. Economic modelling results show a larger FTA confers more economic benefits than the smaller ASEAN+3 FTA However, perceived problem of India being more protectionist and slowing down the pace of trade and investment liberalization So EAFTA or CEPEA? Both under serious consideration by ASEAN. Feasibility studies undertaken. Some proposed that both can exist sequentially, with EAFTA first and then expand into CEPEA.

APEC Forum…1 APEC formed in 1989 to promote trans-Pacific economic cooperation. Current membership of 21 economies that includes Hong Kong and Taiwan, Australia and New Zealand and US. Annual meeting of APEC leaders seen as a great diplomatic event APEC founders opted for open regionalism and voluntary and unilateral trade and investment liberalization to achieve Bogor goals of free trade for the developed economies by 2010 and for the developing economies by Bogor goals so far illusory, although there is an IAP peer review of APEC economies. Action focus in recent years has been on trade and investment facilitation rather than meeting liberalization goals.

APEC Forum…2 ABAC proposal for a Free Trade Area of the Pacific (FTAAP) has so far met with lukewarm response. Would fundamentally change the nature of APEC into a negotiating forum Reaching consensus on a high quality FTA near impossible among the diverse 21 economies of APEC. Rising US protectionist pressures Would divert scarce negotiating resources from Doha Round Proposal that APEC adopts a coalition of the willing approach by expanding the existing Trans-Pacific Strategic Partnership (TPSP or P4). It is a high quality FTA among Brunei, Chile, New Zealand and Singapore but lacks the clout of big economy participation.

Roadmap to Region-wide FTA…1 Goal, region and membership Need a common political vision of the region Goal of economic integration or community building? ASEAN10+3, ASEAN10+6, APEC21, P4 expanded? How to handle the wide development gaps? ---flexible arrangement with S&D treatment for the poorer countries Different time frames and schedules for liberalization Different sensitive and exclusion lists Economic and technical cooperation and capacity building How to negotiate a common template and resolve the noodle bowl?

Roadmap to Region-Wide FTA…2 Possible steps to reach a region-wide FTA in East Asia EAFTA through ASEAN10+China+Japan+Korea negotiations EAFTA through ASEAN FTA and CJK FTA CEPEA through consolidating the ASEAN+1 FTAs with China, Japan, Korea, Australia-New Zealand and India Progression from EAFTA to CEPEA Inclusion of Hong Kong and Taiwan economies Possible steps to reach a Asia Pacific FTA Difficult to negotiate the FTAAP among 21 APEC economies Expand the P4 through coalition of the willing ---positive demonstration effect if large economies such as US, China and Japan express interest Linking EAFTA/CEPEA with NAFTA

Roadmap to Region-wide FTA…3 Sherry Stephensons (2007) possible lessons from the failure of the Free Trade Area of the Americas (FTAA) Common vision is necessary among the major economies Time frame of the negotiating process must not be too long Objectives must be realistic and achievable Minimal interference from other FTA negotiations Chairmanship of the process should not be given to the major players Prior understanding on how to treat labor and environment Willingness and identified capacity to finance and support the negotiating process

END OF PRESENTATION THANK YOU