助成Institute forInternational Policy Studies
・Tokyo・IIPS International Conference“Building a Regime of Regional Cooperation inEast Asia and the Role which Japan Can Play”

TokyoDecember 2-3, 2003

“FTA and Regional Co-operation in East Asia”
By
Dr. Narongchai Akrasanee
Former Minister of Commerce,
Chairman & CEO of Seranee Holding Co. Ltd,Thailand

FTA and Regional Co-operation in East Asia

By
Narongchai Akrasanee, Ph.D.

Presentation prepared for a Conference on“Building a Regime of Regional Cooperation in East Asia andthe Role which Japan Can Play”
Organized by Institute for International Policy Studies
Tokyo, Japan
2 December 2003

1FTA and Regional Cooperation in East Asia
By

Narongchai Akrasanee, Ph.D.
The year 2003 will be remembered for the Year of East
Asia Economic Cooperation (EAEC).
What happened in 2003 that signalled the emergence ofEAEC ?
And, what will be the impact of the numerous FTAs
involving the countries in East Asia on the process of EAEC ?
This brief note intends to address FTAs and the emergenceof EAEC.
Emergence of EAEC
There were several events during 2003 which signalled
the emergence of EAEC. To name a few,
1.

Malaysia hosted the first Congress on EAEC during4-6 August, with a very large attendance, and acommitment to pursue the establishment of EAEC.

2.

The ASEAN Summit during 8-9 October in Bali,Indonesia, witnessed the signing of a cooperation
scheme among ASEAN and China, Japan and South
Korea, altogether instead of individually.

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3.

The 11th APEC Leaders Meeting during 20-21
October in Bangkok, Thailand, endorsed a financial
cooperation scheme involving mainly East Asianeconomies.

In addition, ASEAN has been playing a pivotal role in theformation of EAEC, by having bilateral agreements with each of
the three North East Asian countries. These agreements include
the Treaty of Amity between ASEAN and China, with the same
being comtemplated between ASEAN and Japan, and manyother FTAs or economic partnership agreements.
It seems the three North East Asian countries have wanted
to see EAEC evolving from their bilateral agreements withASEAN. This is a way of avoiding a certain political sensitivity
between China and Japan, and between South Korea and Japan.
But the event in Bali on 9th October suggests that the Northeast
Asian countries realize the inevitability and the desirability of
East Asia economic cooperation.
Why is this so ?
Observers of the development of East Asia have been
seeing the process of economic integration growing first
gradually, then rapidly, since the opening up of China in the
1980s. Since then, because of the almost unlimited supply of
low cost workers and technicians, China has become one of themost competitive manufacturing

centers in the world.

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industries in other countries, in order to remain competitive insome areas, have had to engage manufacturing facilities in
China in one way or another.
Thus the integration of manufacturing production in EastAsia.
Another important development is the growing foreignexchange reserve in East Asia. As of August 2003, the combined
FX reserve of East Asia stood at US$ 1,600 billion, accounting for
64 % of global reserve.
Following the Asian financial crisis of 1997/1998 many
countries in East Asia came to realize the problems relating to
the volatility of global finance. Such features of global financecould bring about the instability of the exchange rates andcapital flows, to the detriment of the local economy. In fact in1998 the Hong Kong dollars also came under attack. Only withthe strong support of China that the hedge funds attacking theHong Kong dollars had to back off.
So since the Asian financial crisis of 1997-1998s the East
Asian countries have been introducing financial cooperation
schemes to help minimize the instability effects of global
finance.

These

schemes

includethecurrency

swap

arrangements at the amount of US$ 54.50 billion, and thedevelopment of the bond market, which encompasses many
aspects of the development of the capital market in East Asian.

4Now that East Asia is moving towards production andfinancial integration, what is of interest is how the various
cooperation schemes will influence the pattern and the directionof EAEC.
FTAs and EAECFirst is the proliferation of FTAs.
In East Asia the first FTA is the ASEAN Free Trade
Agreement (AFTA) which came into effect in 1993 and isalmost fully implemented in 2003. For ASEAN, cooperation
under AFTA will be deepened and broadened, to include also
trade in services.
Then there are many other FTAs, at various stages ofdevelopment including :ASEAN-China

ASEAN-JapanASEAN-

South Korea

Japan-South Korea

Japan-

ThailandJapan-

Singapore

Japan-

Malaysia

China-

ThailandChina-

Malaysia

South Korea-

Thailandetc., etc.
These agreements and the financial cooperation schemes
5mentioned earlier will help enhance the growth of production
and financial integration in East Asia.
Although all FTAs are meant to facilitate the flows ofgoods and services between the contracting economies, it must
be realized that FTAs are discriminatory to the non-contracting
economies. Fortunately in East Asia most economies seem tobe contracting economies, directly or indirectly. Thus FTAs arelikely to have trade creation effect for the whole of East Asia,
although the effects will vary from case to case.
FTAs of China and of JapanFor each FTA there are certain different features, with
important economic and political implications.
Take the case of ASEAN – China VS ASEAN Japan, or
the case of Thailand – China VS Thailand-Japan as examples.
In the pursuit of FTA China seems to move much fasterthan Japan. This is due to the fact that China is considered tobe a developing country, thus allowed to utilize the WTOenabling clause to apply a gradual coverage under FTA. Japan,
on the other hand, has to have a substantial coverage under FTA,
because it is a developed country.
Another reason why China can move faster than Japan
could be political, The political system in China allows theChinese government to make a decision faster than the Japanese
government.

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So in November 2001, China and ASEAN agreed tonegotiate an FTA. And only in January, 2002 Japan proposed
an economic partnership agreement with ASEAN.
By November 2002, ASEAN and China already agreed ona timeframe for FTA for certain sectors.

In the meantime

ASEAN and Japan are still consulting up until now.
A similar development can be observed in Thailand-Chinaand Thailand-Japan FTAs.
In October 2003 Thailand and China started to implement
free trade agreements in fruits and vegetables. At this timeThailand and Japan are still negotiating.
An exception is Japan – Singapore FTA. As Singapore isbasically a free-trade economy, Japan could achieve a very
comprehensive FTA with Singapore.
Obviously FTAs with China are producing results much
faster than FTAs with Japan, in general. To the general public,they see China to be more serious than Japan in the promotionof free flow of goods.
FTAs and Regional Integration
Al the end of the day what is important is whether FTAs
would lead to the enhancement of political will to integrate
regionally.
As of today FTAs are not coordinated regionally. So it
appears that certain countries, particularly Singapore, Thailand,
and also China, are going their own way to conclude FTAs. In7

the short run the anomalies in the tariff and trade regimes arebound to occur, creating distortion in relative prices and thus
limiting potential welfare gains of FTAs.
Perhaps the leaders of East Asia saw these potential
distortions. They, therefore, agreed on 9th October in Bali tohold consultation on cooperation for East Asia.
It is difficult to say whether the leaders gained political
will to integrate regionally because of the proliferation of FTAs.
What is more likely is that the leaders already saw the need for
EAEC. But because of certain political sensitivity, they went at
EAEC in a roundabout way, utilizing bilateral FTAs.
With many FTAs at various stages of development, itbecame obvious that a more efficient approach would be EAEC.
Economic Integration and Regional Security
Economic integration in East Asia, which has been on
going even without official agreement to that effect, has been
the result of individual decision and action to minimize
economic risk, and thus maximizing economic security.
Under global market capitalism businesses are faced withrisks due to slow demand growth, lower cost competition, andsudden applications of trade interference measures, and financial
risks.
In addition businesses are also faced with non-traditionalrisks such as international terrorism and epidemic.

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To minimize the traditional risks, businesses have reliedon China, for example, for production net-working, and for newdemands.
And business have also made use of AFTA for theirproduction net-working.
An

East Asia-wide official cooperation in trade,investment, and finance would facilitate the need for businesses
to integrate among themselves.
As for the non-traditional risks, the official cooperation isrequired.
Thus for both traditional and non-tradition risks,deepening economic relations officially and business-wisewould obviously help minimize these risks.
This conclusion is made with an important proviso thatmeasures to counter international terrorism are designed
specifically for the facilitation of commercial transactions.

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