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‘Deeper’ integration must go beyond Asia’s borders

by Takashi Kitazume

Asia needs to start considering ways to “deepen” its economic integration while at the same time keeping itself open to parties from outside the region, experts told the March 24 symposium.

East Asia has achieved a high degree of “de facto” market-based integration through establishment of cross-border production networks and now backed by institutional frameworks like free-trade agreements.

But the Asian countries should also look further than mere tariff cuts, and move toward facilitation of services trade and investments, as well as freer movement of capital and labor, said the experts as they discussed how Asia can maintain its economic dynamism.

What has so far happened in East Asia is an “extremely shallow” form of economic integration that focused on the elimination of tariffs on goods trade, said Fukunari Kimura, an economics professor at Keio University.

However, there are problems that Asia cannot handle through such forms of cooperation alone, like the development gap among richer and poorer economies in the region, as well as common challenges like energy, natural resources and the environment, Kimura pointed out.

Kimura compared the European Union-type integration, under which members pursue fairly deep forms of cooperation while imposing high hurdles for membership, with the Asian integration that keeps doors open to those outside the region but involves shallow forms of cooperation like FTAs.

Asia’s “open architecture” has made sense because it relies heavily on markets outside the region and because its production networks often involve American and European firms, Kimura noted. But if Asia is to work together on issues other than goods trade, it will ultimately need to pursue deeper forms of regional cooperation, he added.

Kimura said the so-called spaghetti-bowl syndrome of the coexistence of mutually inconsistent bilateral free-trade agreements has not necessarily caused serious problems so far because major Asian economies had nearly eliminated their tariffs on, for example, machinery components.

But these bilateral FTAs will eventually need to be streamlined into a multinational, regional framework, he added.

Kimura also said that while the 10-member Association of Southeast Asian Nations has so far been the main driving force for East Asian economic integration, the lack of any institutional framework for cooperation among Japan, China and South Korea is “extremely unnatural” given their importance to the region.

The continuing lack of such a framework may affect the future momentum for integration because it raises questions about the regional identity of East Asia, he added.

Hank Lim, director of research at the Singapore Institute for International Affairs, said ASEAN has so far been a “defaulted hub” of East Asian regional cooperation.

While naturally ASEAN should not be the hub because its members are not the strongest economies in the region, it served as the hub by default because of the historical rivalry between Japan and China, Lim said. And ASEAN has had 40 years of trial and error for economic cooperation among its members, he added.

Efforts toward multinational free-trade framework building in Asia have evolved with Japan, China and South Korea each pursuing FTAs with ASEAN. These countries also make up the ASEAN-plus-Three framework.

ASEAN’s role as a hub in regional community building will likely diminish as China and India start to play greater roles in shaping the region’s future, Lim said.

And if it is to keep playing any role for the region, ASEAN will need to remain highly competitive as an economic group by creating a single market and production base in line with its goal of building the ASEAN Economic Community by 2015, he added.

It is equally important to narrow the development gap between the more developed economies of ASEAN and its new, poorer members Vietnam, Cambodia, Laos and Myanmar, he said, because otherwise ASEAN will lose credibility as a group.

Ramgopal Agarwala, a senior adviser to the Research and Information System for Developing Countries, meanwhile, stressed that India “very much wants to be a part of the Asian integration process.”

Studies at his think tank show that benefits from trade liberalization among the ASEAN-plus-Six countries, which also include India, Australia and New Zealand, will be much greater than if the integration is limited to the ASEAN-plus-Three countries, Agarwala said. India as a service-oriented economy strong in the information technology fields will complement East Asia’s comparative advantage in manufacturing, he added.