October 29, 2009

NIRA Report

Asia as a Single ‘Domestic Market’
The Harmonization of Rules and Systems
Noriyuki YANAGAWA
Executive Vice President of NIRA
Associate Professor, Graduate School of Economics,
Faculty of Economics, The University of Tokyo

Since the global financial crisis, Japan has increasingly sought the path to its economic future in

the Asian market. Clearly, if we consider the trends of the past several years, the nations of theAsian region have displayed a higher rate of growth than other nations, and their recovery from thecrisis has also been comparatively robust. Further, it is predicted that the population of the region’s
middle income bracket (commanding a disposable income of between US$5,000 and US$35,000
per household) will grow by more than 500 million to approximately 1.4 billion in the next tenyears (see the figure below). A strategy which emphasizes the Asian market is therefore clearlyjustified.
However, like Japan – and perhaps to a greater extent than Japan – Europe and the U.S. are also
focusing attention on the growth potential of the Asian market. Looking at trends in direct
investment, we see that Europe is the major investor in ASEAN nations, and the U.S. maintains ahigh level of investment in China. By contrast, in terms of people-to-people exchanges, Japan’srelationship with ASEAN is rather weak. The belief that geographical proximity enables Japan’sconnection with other Asian nations to be taken for granted is a trap for the nation.
Japan’s economic policies with respect to other Asian nations frequently tend to fall into one oftwo categories: the provision of aid, or the seeking of profit. However, if Japan is to deepen its
cooperation with the rest of Asia and tap into the region’s dynamism to power its development, it
will be essential to consider not merely short-term profit for Japan but relationships that promote
long-term mutual development.
To that end, the first requirement will be to do away with the dichotomy between internal andexternal demand. In a globalized economy, it is meaningless to establish a border between internaland external and to argue over which is the more important. What is required is that we eliminate
this division, and seek methods of establishing bonds and building relationships of such strengththat all of Asia can be considered a single internal market.
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It will also be vital for Japan to build relationships of trust with other Asian nations that can bemaintained over the long term. In order to build such relationships, it will be necessary to lower thewalls between Japan and the other nations of the region and to increase the practical benefits ofcooperation by pushing ahead more actively with personnel exchanges at the same time aspromoting the harmonization of systems. The standardization and harmonization of rules andsystems in a diverse range of areas – technical standards, environmental standards, and standards ofcorporate governance, to name a few – will be of benefit in boosting cooperation throughout theAsian region, at the same time as further stimulating economic activity.
What is more, the world economy stands before an era in which we will see competition for theselection of global systems, and measures must be introduced by Japan and other Asian nations thattake this fact into consideration. Such international competition for the selection of systems ischaracterized by a de jure form of selection, in which systems are determined from the top by apolitical process. While in de facto selection, the results of choices made by consumers have aconsiderable effect on the selection of future systems and standards, the market scale of nations andregions has the most significant impact on negotiations in this area in de jure selection. This applies
not merely to technical standards, but to the international selection of rules and systems in a varietyof areas, for example accounting systems.
This is an extremely serious issue for Japan, a nation whose internal market will necessarily
contract as its population declines. It will also be essential for Japan to cooperate with other Asiannations in the standardization of rules and systems if it is to possess sufficient negotiating powerinternationally when global systems are being selected. In addition, it will be necessary to work
internationally in order to use the potential market scale of the Asian region to enable the selectionof standards that will stimulate economic activity.
For this reason, the fostering of specialized personnel for the standardization of rules andsystems is an urgent issue for Japan and for the other nations of Asia. The EU has alreadyaggressively provided ASEAN with financial aid, and has dispatched human resources, to assist in
the formulation of harmonized regional standards. It would be desirable for Japan also, in addition
to rapidly fostering personnel specialized in this area, to provide direct support to the Asian region,and in doing so to contribute to the long-term prosperity of the Asian economy.

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Figure: Changes in the Asian middle income population (disposable income of between
US$5,000 and US$35,000)
100 Million
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Projected (NIRA estimate)

1816

India
1.43 billion

Vietnam14Indonesia
1210

Philippines
Malaysia
880 million

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ThailandSingaporeKorea

6Hong Kong
4

China

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* Figure 3-1, page 5 of the report. Actual figures are employed up to 2008. NIRA estimates areemployed from 2010 onwards. Detailed notes concerning the data and estimates used can be found on
page 5 of the report.

NIRA Research Report “Asia as a Single ‘Domestic Market’: The Harmonization ofRules and Systems” (http://www.nira.or.jp/pdf/0903report.pdf)

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