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IDEAs-RIS Workshop

Challenges to Asian Regionalism:An ASEAN Perspective

Suthiphand CHIRATHIVATChulalongkorn University

5-6 November 2009New Delhi, India

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Changing Asia in Regional and Global Dynamics: Economic Outlook

• Asia’s economic outlook seems bright, with developing Asia’s estimated growth at 3.9% in 2009 and 6.8% in 2010.

• Asia leads recovery, despite the global economic downtown.

• China and India are leading region’s economic recovery

• Putting Asia into a “unique position”, but for how long?

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-12.00-10.00-8.00-6.00-4.00-2.000.002.004.006.008.00

10.0012.0014.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

China Indonesia Japan KoreaMalaysia Philippines Singapore ThailandUnited States world EU

Co-movement of GDP Growth in the Asia, US, and EU Current and Forecast by IMF

Source: CEIC

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Changing Asia in Regional and Global Dynamics: Crisis is Redrawing the Map

of Asia’s Global Economic Influence

• A multi-polar economy less reliant on the US consumers will be a more stable economy (Zoellick)

• Crisis has accelerated a shift from west to east• Major emerging economies like China and India

take the lead and are becoming real partners• Would the world now start to “rebalance towards

Asia”?

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Changing Asia in Regional and Global Dynamics: Asia’s Role in the

Global Economy

• Asia’s “Seat at the Table” of G-20

• Growing recognition in the core economic discussion and governance like, the World Bank, WTO and the IMF

• US dollar under scrutiny with an increasing weight of Asian currencies

• Crisis might happen again and Asia is still part of the global imbalances (Bernanke)

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Global imbalances remain, but shifting

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• Strong Foreign Reserves in Asia as compared to other developing countries

• Reserve Pooling is a sound suggested option

• The question is how to implement it

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Changing Asia in Regional and Global Dynamics: New Emphasis on

Regional Strategy

• Crisis proved Asia not “decoupled”

• Debate on export-led growth model

• More focus on regional final demand rather than solely on regional production networks

• Potential rise in per capita income in all emerging Asian economies

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Drop In World Trade volume of goods and services

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e

%

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Moving into Asian Regionalism: At the Beginning

• East Asia,for long, an “Empty Box”

• Preferences of multilateralism

• ASEAN AFTA, the only RTA in operation

• Increasing cooperation and integration since the Asian financial crisis of 1997-98

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Moving into Asian Regionalism: AFTA

• AFTA 1992 to 2010 (2015 for CMLV)– At first, “conditional MFN” and partial tariff

cutting– Agree to go to zero (Bali II)– Each nation’s sensitive lists

• Net effects: each bilateral trade flows faces a different tariff structure

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Moving into Asian Regionalism: ASEAN Economic Community

• AEC Blueprint (2009-2015)• AEC based on single market and productive

base• Also aims for competitive economic region,

equitable economic development and integration into the global economy

• Roadmap for an ASEAN Economic Community• Implementation, hardest part (AEC Scorecard)

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Moving into Asian Regionalism: ASEAN-China FTA

• Signed in November 2004

• Nation-specific sensitive lists & conditional MFN, so de facto 10 bilaterals

• Tariff cutting started mostly mid 2005 to zero by Jan 1st, 2010 for 90% of Products

• From goods to investment and services

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Moving into Asian Regionalism: ASEAN-Japan FTA

• Japan-Singapore was signed in 2002– Different agreement to AFTA and ACFTA, reads like

European & US FTAs, more structured

• Japan-Malaysia signed Dec 2005• Soon with Indonesia, Thailand, the Philippines,

Vietnam and Brunei• In parallel, AJFTA with ASEAN as a whole from

2008• Tariff cutting, to zero by 2012

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Moving into Asian Regionalism: ASEAN-ANZ FTA

• Similar to Japan-ASEAN FTA, much structured an broadened

• In parallel with bilaterals, like Thailand-AWZ, starting in 2005.

• Tariff cutting starting in 2009 to zero in 2015

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Moving into Asian Regionalism: Latest initiatives of AKFTA, AIFTA

• Similar to AC FTA, but more political difficulties, started later

• De facto 10 bilaterals in 2008 (AKFTA)

• Tariff cutting to start in 2010 (AIFTA)

• Investment agreement concluded for AKFTA, to include services as well

• More negotiations needed for ASEAN-India investment and services agreements

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Moving into Asian Regionalism: BIMSTEC, GMS, BIMP-EAGA

• BIMSTEC is aiming at links of countries in South and Southeast Asia– Still negotiations on FTA– More cooperation on agriculture, fishery,

tourism, human resources, etc.

• GMS and BIMP-EAGA are sub-regional cooperation– Infrastructure development– Role of ADB, ASEAN (IAI)

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Moving into Asian Regionalism: Country-to-Country Bilaterals

• ASEAN individual countries have additional bilateral FTAs

• Singapore, the most advanced stage

• Malaysia, Thailand considered as medium high

• Indonesia, the Philippines and Vietnam, at a moderate level

• Others, not significant

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Defining Asian Regionalism: Some Conceptual Issues

• Asian “Noodle Bowl” (“Spaghetti Bowl” a la Bhagwati)

• Managing the Noodle Bowl: The Fragility of East Asian Regionalism (Baldwin (2006))

• Triggers & dominos

• Where all these leading to?

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Defining Asian Regionalism: Likely Outcomes

• ASEAN+1, with 6 major partners• Ad hoc nature of ACFTA, but will get done (192

billions US$ in 2008, from 60 billions US$ in 2002)

• Japan, bilaterals, with big ASEANs, will get done• AJ FTA looks like opportunity for largesse, but

basically, more GSP like• ASEAN-ANZ FTA, also, will get done• Finally, AK FTA and AI FTA look promising as

well (ASEAN-India trade, 50 billions US$ in 2010, then 70 billions US$ in 2012)

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Defining Asian Regionalism: System Fragility

Baldwin argues• East Asia’s collective action problem• Asymmetric dependence makes matters worse

– ASEAN more dependent on the “conveyer belts” than are China and Japan

• If a few “conveyer belts” break down, whole factory suffers– Competitiveness of Japanese firms in US market

depends on intra-regional trade– Ditto Korean & Chinese firms– Indian & ANZ firms?

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Defining Asian Regionalism: Emerging Issues

• RTAs, by nature, discriminatory

• Rules of origin, tools for protection

• Overlapping RTAs, difficult adjustment for business

• In the case of AFTA, utilization rates are low

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Institutionalizing AsianRegionalism: Needs for Broader

Regional Cooperation

• Market dynamics and increasing role of East Asia

• Consolidation of various initiatives

• Immediate concern, overlapping FTAs

• Institutionalizing possibilities, tremendous, but also to be realistic.

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Institutionalizing Asian Regionalism: EAFTA Phase I

• Leaders put EAFTA on the economic cooperation agenda during the 10th ASEAM+3 Summit

• EAFTA process to process within ASEAN+3 framework

• EAFTA to be of high quality

• Economic cooperation along with EAFTA

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Institutionalizing Asian Regionalism: EAFTA Phase II

• Leaders put EAFTA as an important initiative during the 13th ASEAN+3 Summit

• Gradual and realistic strategy be pursued to achieve a desirable and feasible EAFTA

• Consolidating existing FTAs• Working groups on (1) unified ROOs and (2)

tariff nomenclature and other customs-related issues

• Negotiations to be launched by 2012, at the latest

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Institutionalizing Asian Regionalism: CEPEA Phase I

• Objectives and structure to be composed of 3 pillars– economic cooperation– trade and investment facilitation– trade and investment liberalization

• Discussion to be commenced among officials on cooperation and facilitation

• Necessary decision to be made regarding on FTA

• Mechanism to be developed for the private sector

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Institutionalizing Asian Regionalism: CEPEA Phase II

• Objectives and structure reaffirmed by leaders

• Study and discusses on – concrete steps to realize CEPEA– comprehensive framework that includes

cooperation, facilitation and liberalization, and to be commenced immediately among officials.

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Impact on GDPASEAN+6 ASEAN+3

China 4.65 4.49

India 3.40 -0.07

Japan 0.64 0.63

Korea 2.67 2.64

Indonesia 4.35 4.15

Malaysia 9.53 9.24

Philippines 5.95 5.77

Singapore 3.83 3.67

Thailand 7.46 7.21

Vietnam 11.06 10.79Source: CEPEA Report

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Institutionalizing Asian Regionalism: ASEAN’s Centrality

• Role of ASEAN in the ASEAN+3 and ASEAN+6

• ASEAN’s in the driver’s seat?

• Bloc’s top-down, what’s about bottom-up?

• Upcoming challenges: Who’s in or out?

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Institutionalizing Asian Regionalism: Latest Initiatives

• Leaders accepted both EAFTA and CEPEA initiatives, still to be decided how to proceed

• In addition, more proposals added at the 4th East Asia Summit– “East Asia Community” by Japanese PM

Hatoyama– “Asia-Pacific Community” by Australian PM K.

Rudd