Toward an East Asian economic community

Ari A. Perdana, Centre for Strategic and International Studies (CSIS), Jakarta , Ari_Perdana@csis.or.id

Since the mid-1990s, countries have adopted two routes toward economic globalization. The first is multilateral economic integration, with the Uruguay Round of the Generalized Agreement on Trade and Tariffs (GATT) as the most significant achievement. The second route is regional cooperation.

The movement toward a more globalized economy, translated into liberalization of foreign trade and investment, has been the driving force for several forms of regional economic cooperation.

One of the most significant reason for going regional is concerns about the imbalances of the world economy. Many have become worried about the possibility of developed countries using "institutionalized globalization" to force their agendas onto their developing counterparts.

To reduce the possible negative impact of globalization, strengthening cooperation with neighboring countries was seen as the solution. Furthermore, according to the "building bloc" argument, integration and openness to regional economies can act as a "training ground" for countries before moving further toward global integration.

Among economic regions, East Asia was considered the most dynamic region. Although the recent economic crisis has hampered the region's economic growth, both as a whole and of each individual country, East Asia has not lost its potential to be the leading economic region. This opens wider opportunity for more intense economic cooperation.

However, there has been a lack of a comprehensive vision for such further economic cooperation. One indication of this was the lack of a coordinated response by governments in response to the 1997 economic crisis, which heightened the impact of this crisis.

Another clear indication is the number of initiatives taken without a clear view of where they all will lead. We have the ASEAN Free Trade Agreement (AFTA), for instance, grouping the 10 members of ASEAN, and those of the Asia Pacific Economic Cooperation forum (APEC), comprising most East Asian countries plus some other countries from the Pacific Rim.

And just recently ASEAN signed a Free Trade Agreement with China, with similar agreements with Japan and Korea awaiting. There are also bilateral arrangements, such as Singapore-Japan Close Economic Relations; and several sub-regional cooperation schemes like the Singapore-Johor-Riau (Sijori) special economic zone, the Indonesia-Malaysia-Thailand Growth Triangle and the East ASEAN Growth Area, comprising Indonesia, Malaysia, Brunei and the Philippines.

East Asian countries should have a blueprint for deeper economic integration. They should pursue an "East Asian Economic Community" (different from the "East Asian Economic Caucus" proposed by Malaysian Prime Minister Dr. Mahathir in the early 1990s). Such a Community was suggested at the ASEAN+3 Summit in Brunei in November 2001. This vision views East Asia as no longer a region of nations, but as a "community with shared challenges, common aspirations and a parallel destiny".

The next question is what form of economic integration should it take. Currently, the region is only up to an FTA level, meaning that free trade in the region is still at the earliest stage. Higher phases would be a customs union or common market, and finally a full economic union. In a customs union, member countries apply a common external tariff to nonmembers, in addition to the removal of tariffs among themselves. Then, in a common market, cooperation includes free labor and capital markets.

A common market could be a guideline for the Economic Community. In addition, the cooperation could be broadened through the harmonization of economic policies, such as taxation, investment policy or labor regulation. One reference could be Mercosur, the common market set up by several Latin American countries -- Argentina, Brazil, Paraguay and Uruguay.

Another reference for deeper economic integration is a European Union (EU)-type monetary integration. However, East Asian countries may still be far from replicating the EU. At least in the foreseeable future, the East Asian Economic Community agenda should be more focused on establishing a common market plus harmonizing economic policies.

On paper, the establishment of this Community is realistic enough. If an East Asian FTA is targeted to be achieved in 15 years from now, probably a common market could be established in around 30 years. But first, the countries should make some effort to close gaps regarding their development.

This would not be easy, considering that the region consists of highly developed countries like Japan and Singapore, newly industrialized countries (Malaysia, Thailand, South Korea), relatively low-medium income countries (China, Indonesia, the Philippines), and some transitional countries (Cambodia, Laos, Vietnam, Myanmar).

Second, political obstacles between countries should be removed. For example, the historical hostility between Japan and Korea, disputes between countries of the Association of Southeast Asian Nations and the political implications of the Taiwan issue.

Another question is how each country would handle domestic problems arising from this idea. The public should be well informed about the potential domestic benefits to be gained from regional economic integration. Policy-makers should stress that regionalism can act as insurance when entering globalization.

This article was based largely on economic sub-group discussions at the 2003 Global Youth Exchange. The event was held in Japan from Jan. 20 to Jan. 31, sponsored by Japan's Ministry of Foreign Affairs. The topic was "Asia-ASEAN and International Society: A New Regional Cooperation in the 21st Century". The author participated in the event with 35 other participants from 25 countries.