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Towards an East Asian economic unit

Financial Express, India

Towards an East Asian economic unit

The coming East Asia Summit should start by coalescing various ongoing FTAs

Nagesh Kumar

20 June 2006

The developments of recent years have led to an Asian resurgence, with the emergence of China and India as engines of growth, the recovery of Japan from a decade-old recession, rise of the Asian middle class as a source of final demand, and increasing resilience of Asian countries to external shocks such as oil price rises, etc. Over the past decade, Asian countries have also integrated themselves within the region, as evident from a high and growing proportion of intra-regional trade and investments. Besides growing economic inter-dependence, Asian countries also face shared vulnerabilities to external shocks and natural disasters.

There is also an attempt to build on this ‘functional’ or market-driven cooperation and growing inter-dependence to more formal institutionalised cooperation, as is clear from numerous sub-regional or bilateral free trade arrangements. In particular, China, Japan, India and South Korea are all working on Asean+1 FTAs. China, Japan, Korea and India are also studying bilateral FTAs between themselves. Through the emerging web of FTAs, an Asian economic community is evolving. There is need for building on these sub-regional and bilateral attempts at a broader regional framework to provide a seamless market, facilitating exploitation of synergies more effectively.

Studies have shown that broader regional integration in Asia has the potential of generating billions of dollars of new output and put Asia on a high growth path. Further, it has been shown that Asian economic integration will benefit the rest of the world, as it implies trade creation rather than trade diversion. Hence, it is a case of win-win for Asia, as well as the world economy. Regional economic integration is also likely to bring about convergence in the levels of development and so, could an important instrument in the region’s fight against poverty.

Evolving a framework for broader regional cooperation in Asia got a shot in the arm with the recent announcements by Japan’s minister of economy, trade and industry, Toshihiro Nikai. He has proposed a Comprehensive Economic Partnership Arrangement in East Asia, combining the 16 countries that participated in the East Asia Summit (EAS), a new forum launched in December 2005 in Kuala Lumpur. The proposals include regional trade liberalisation for strengthening regional production networking, by providing one economic space and making the region more attractive for investment by evolving common rules for trade in services, investment, etc. and fostering sectoral cooperation.

Mr Nikai has also proposed to create an OECD-like think-tank to assist the process of regional economic integration. Such an institution could pool the capabilities and expertise built over recent years at a number of think-tanks in different parts of Asia. Among these is a series of high-level policy dialogues on Asian Economic Integration organised by RIS in collaboration with counterparts in Delhi, Tokyo and in Taiyuan, China. These dialogues have helped build a network of researchers and institutions active on the subject.

The Nikai proposals are quite consistent with the vision of Prime Minister Manmohan Singh when he called for a pan-Asian FTA combining all the EAS members, at the first EAS in December 2005, as a way forward towards an Asian Economic Community as an ‘arc of advantage.’ A comprehensive arrangement covering all EAS member-countries that could be later expanded to cover other Asian countries is perhaps what Dr Manm-ohan Singh had in mind when he gave a call for it.

Therefore, the Indian and Japanese positions on the issue of broader Asian integration are converging. In fact, the two nations “committed themselves to work together to promote the vision of an Asian Economic Community” as proposed by India during the visit of Prime Minister Koizumi here during April 2005. The proposed East Asian Comprehensive Economic Partnership Arrangement could be a major building bloc of the proposed East Asian community or an eventual Asian Economic Community.

Therefore, among the first priorities for the coming East Asia Summits could be to create a framework for regional cooperation in trade and investment among the participating countries, by coalescing various ongoing FTAs between Asean and its dialogue partners and between the dialogue partners. Even with 16 EAS partners to begin with, it will cover half the world’s population, nearly a quarter of world output and trade, and two-thirds of global foreign exchange reserves. By providing a seamless market to the EAS (or Asian) businesses and industry, such an arrangement will help in efficiency-seeking restructuring of Asian industry and could emerge as an engine of growth.

The East Asian arrangement should target liberalisation of regional trade and investment regimes in a phased manner by 2020, with provisions for safeguards for sensitive products, special and differential treatment for countries at different levels of development and dispute resolution. Liberalisation of agricultural trade should be attempted on a separate track from that of industrial goods to allow supremacy to considerations of food security and livelihood issues.

Care must be taken in designing the programmes of regional economic integration so that they keep equity, employment generation and necessary social transformation and social safety nets for the vulnerable sections of the society at their heart, so that it represents regionalism with an ‘Asian Face.’ By balancing the interests of efficiency and equity, the Asian arrangement could well emerge as a role model for trade liberalisation in multilateral as well as regional contexts in the whole world.

 The writer is DG, Research and Information System for Developing Countries (RIS). These are his personal views