Economic Crises and East Asian Cooperation: ASEAN, ASEAN+3, and ASEAN+6 Dr. Kitti Prasirtsuk 9 May 2009

2 Relevant Jargons East Asia ASEAN+3 East Asia Summit (EAS): +Australia, New Zealand, India (ASEAN+6) East Asia Community (EAC) EPA: Economic Partnership Agreement

3 East Asian Community - EAC ASEAN+3 ASEAN+6 or East Asian Summit ASEAN

4 Argument East Asian cooperation has been driven by economic crises. Yet, it is the rivalry b/w China and Japan that determined the “timing” of the cooperation debate (esp. on creating an East Asian community) during the early 2000s. It is the Japanese business interests that forge the “contents” of East Asian cooperation, including FTA / EPA and financial cooperation.

5 Why discussed now? - Global Financial Crisis -ASEAN Summit, Feb ASEAN+3 Summit and East Asia Summit (ASEAN+6), Apr scheduled but failed.

6 Overview 1. The Development of EA Regionalism 2. Negative and Positive Factors 3. Understanding EA Regionalism 4. The Future? 5. Conclusion Discussion

7 First Attempt – Greater East Asia Co-prosperity by Imperial Japan (World War II) Second Attempt – East Asia Economic Grouping  East Asia Economic Caucus (EAEC) by PM Mahathir (1990) Current Attempt – 1997 Asian Financial Crisis  ASEAN+3  ASEAN+6? : “East Asian Community” East Asian Community – 3 Attempts

8 1. The Development of EA Regionalism The end of the Cold War  more focus on trade Stagnant GATT Uruguay Round Rising trading blocs (EU, NAFTA)  1990 Mahathir’s proposal on East Asian Economic Grouping (EAEG), then toned down to East Asian Economic Caucus (EAEC)

9 The Development (cont.) -EAEC: Retaliatory flavor -U.S. opposed -Japan’s Asia-Pacific Approach (w/ Australia) -Superseded by APEC, but ASEM preparation provided chance for its rebirth -Japanese production networks and overseas Chinese business networks “de facto regionalization”

10 What has driven the grouping of ASEAN+3? The Financial Crisis (1997) - limitations of ASEAN on their own - limitations of APEC (split on liberalization— Early Voluntary Sector Liberalization (EVSL) - increasing interdependence b/w Northeast and Southeast Asia - U.S. opposed AMF  Miyazawa Initiative

11 What has driven the grouping of ASEAN+3? (cont.) Increasing economic blocs - EU expansion - NAFTA  FTAA  Common problems + common others  “we feeling”  regional identity ** but also as “security dilemma”

12 What has been progressed so far? First ASEAN+3 (1997) The Chiang Mai Initiative, 2000 (bilateral swap arrangement, starting w $36.5 billion) EAVG Report Numerous functional cooperation, e.g. energy, transportation, environment, technological cooperation East Asia Summit (Dec. 05, Jan. 07, Nov. 07)

13 Progress (cont.) 2001 EAVG Report  2002 EASG Report 2001 China-ASEAN FTA 2002 Japan-ASEAN CEP (EPA) 2004 enhancing ASEAN+3 and East Asia Summit

14 What are the EAVG’s suggestions? Economic cooperation—EAFTA Financial cooperation—regional facility, surveillance, exchange rate coordination Political and Security cooperation—broadening to national governance issue Environmental cooperation—management of water, joint exploration of energy sources, NGO involvements Social and cultural cooperation—promote regional identity, HRD Institutional cooperation—Annual East Asian Summit

15 Negative Factors Differences from EU EU has “2 C 1 D” Christianity Christianity Capitalism Capitalism Democracy Democracy Huge development gap A variety of political systems No common threat, but intra-regional threat

16 Negative Factors (cont.) nationalist sentiment (also for protectionism) Preoccupation w/ domestic problems Conflicting interests among members -Japan vs. China -Rich vs. poor countries -China vs. ASEAN FTAs

17 Positive Factors Economic crises Increasing intra-regional trade Production Networks and Triangular Trade (Japan-ASEAN-China) Increasing regionalism elsewhere (e.g. EU Expansion and FTAA) WTO stagnation Asian Middle Class Culture

18 Intra-Regional Trade %

19 3. Understanding EA Regionalism (EAC) Timing of EAC: The rivalry b/w Japan and China Contents of EAC: Japanese business interests

20 Timing of EAC The competition b/w Japan and China * The Rise of China vs. Japan’s Lost Decade * 2001 China-ASEAN FTA vs JACEP * 2003 NEAT vs. CEAC 2004 * Also Energy and ARF * Japan is playing a catch-up game with China, but Japan has always been good at catching up.

21 Timing of EAC (cont.) * Japan-China tensions during PM Koizumi era  use EAC to deal with Japan - China relations  most discussions on EAC during * Since PM Abe’s reconciliatory posture toward China  less talk on EAC

22 Contents of EAC Business interests (mostly Japan) * Production Networks (through FDI) * Business Free Zone (Keidanren and METI) – for liberalization in investment and services * Japan has a broad business network in Australia  10+6

23 5 Stages of Integration Bela Balassa, The Theory of Economic Integration 1)FTA 2)Customs Union 3)Common Market 4)Monetary Union 5)Political Union

24 3 Pillars of East Asian Community (EAC) FTA/EPA (Economic Partnership Agreement) Monetary cooperation Functional cooperation

25 1) FTA / EPA ASEAN+1 and Japan+1 China-ASEAN China-ASEAN Korea-ASEAN *except Thailand Korea-ASEAN *except Thailand Japan-ASEAN by 2007 Japan-ASEAN by 2007 EAFTA (East Asia Free Trade Area: 10+3)? CEPEA (Comprehensive Economic Partnership of East Asia: 10+6)?

26 FTAs in East Asia China-ASEAN: - regional approach - FTA - Lack FDI linkages w/ ASEAN - competitive economic structure Japan-ASEAN: -bilateral approach -EPA: beyond trade -More pronounced business interests -More complementarities

27 ASEAN’s Roles ASEAN should play a central role. 1) Under FTA negotiations with all countries involved. 2) ASEAN has no serious conflicts with any country. But ASEAN has problems (e.g. bilateralism > multilateralism, slow to integrate)

28 Japan’s Proposals (2006) CEPEA (Comprehensive Economic Partnership in East Asia); 10+6 ERIA (Economic Research Institute for ASEAN and East Asia): similar to OECD

29 2) Monetary Cooperation (1)Policy Dialogue and Surveillance (2)Liquidity Support Facility (CMI) (3)Asia Bonds (4)Asia Currency Unit (ACU) Unit of account or invoicing currency Means of payment or vehicle currency Store of value or investment currency beneficial to Japanese Production Networks beneficial to Japanese Production Networks But China prefers US$-based system But China prefers US$-based system

30 Newest Monetary Cooperation Global Financial Crisis CMIM (Chiang Mai Initiative Multi-lateralization) = AMF? US$ 80 billion  120 billion 80% contribution from +3, but debate on who should contribute more. India and Australia also want to participate. To be discussed in EAS 4.

31 3) Functional Cooperation Significantly increased during More than 20 issues E.g. trade, investment, transportation, labor, environment, culture, communications, transnational crime, technology, energy, terrorism

32 East Asian Community ASEAN Community Model ASEAN Community ASEAN Security Community (ASC) ASEAN Economic Community (AEC) ASEAN Socio- Cultural Community (ASCC)

33 China and EAC So far, WTO emphasis Thinks about EAC less than Japan more sophisticated Japanese business interests  most EAC proposals come from Japan  to create systemic arrangements China wants to create new institutions apart from those under Japan’s influences (e.g. ADB)

34 FDI to ASEAN ( ) US$ Billion Sources:

35 4. The Future of EAS? EAS 1 (Dec. 2005): China vs. Japan; Membership issue EAS 2 (Feb. 2007) : Energy (Cebu Declaration on East Asian Energy Security) EAS 3 (Dec. 2007): Global Warming

36 EAS 4 (Apr. 2009) Thai political crisis  Venue changed from Bangkok to Chiang Mai  lack of confidence on Thai leadership Global Financial Crisis  ASEAN Global Dialogue (AGD) - World Bank, IMF, ADB, UN, WTO, UNCTAD

37 EAS  2 nd APEC? Yes -- loose cooperation without real substance Yes -- loose cooperation without real substance No -- monetary cooperation No -- monetary cooperation -- functional cooperation -- more catalytic roles from ASEAN

38 Conclusion ASEAN+3 is a more advanced cooperation scheme than ASEAN+6. EAS = event, but EAC = continuous process cooperation process > end results 3 Pillars = EPA, monetary cooperation, and functional cooperation Economic > Cultural > Security Community Not yet clear road map ASEAN integration is crucial.

39Discussion Which one do you think more possible: ASEAN+3 or +6? What can you say about EAC, considering Australia’s proposal on an Asia Pacific Community (APC), as well as G20 Meeting? How do you foresee the future of the East Asia Community? How are FTAs related to the East Asia Community? Are they building or stumbling bloc? What role can ASEAN play in East Asia regionalism?