Toward an East Asian economic community

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.