 Chapter 3
Entanglement of Regional Economic Integration
and ASEAN
Takashi Terada
Professor of International Relations, Department of Political Science, Faculty of Law
Key Points


As in the hypothesis that FTAs occur in domino chains, four main types of bilateral
FTA have multiplied in the Asia-Pacific: 1) FTAs between individual members of the
Association of Southeast Asian Nations (ASEAN) and Japan; 2) ASEAN+1 FTAs
centered on ASEAN; 3) FTAs in Northeast Asia centered on China; and 4) the FTAs
involving non-Asian partners such as the United States and European Union (EU)caused by South Korea.



Since 2010, triggered by the launch of Trans-Pacific Partnership (TPP) negotiations,the focus of the FTA domino effect has been shifting from bilateral to multilateralagreements. This is primarily due to a competition over rules and norms of regional
integration between the largest and second largest economies in the world, the UnitedStates and China. The decision of the third largest economy, Japan, also maintains a
key position in defining the trend in this power game. As a result, with ASEAN,
Northeast Asia (a Japan-China-South Korea FTA), East Asia (RCEP), and theAsia-Pacific (TPP), we are facing an era of entanglement of regional integration inwhich there is a jumble of regional integration frameworks forming different contents,
rules, and members, respectively.

This era of entanglement of regional integration has a large effect on the future of
ASEAN, which has maintained the function of merely providing meetings andopportunities under the name thus far of “ASEAN Centrality.” In order for ASEAN toincrease its influence, it must make certain the achievement of the ASEAN Economic
Community (AEC) as soon as possible to act as a single actor in this trade politics
game.

Regional integration frameworks in the Asia-Pacific (as of November 2012)| Intertwined
Economic
Integration
and ASEAN
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Introduction

In November 2012, a series of Association of Southeast Asian Nations (ASEAN) Summit
Meetings held in Cambodia, were watershed gatherings for the regional integration of the
Asia-Pacific.

First, at the China-Japan-South Korea Trade Ministers’ Meeting, the launch ofnegotiations the following year for a Northeast Asian trilateral free trade agreement (FTA) wasannounced (hereafter CJK). Furthermore, the East Asian Summit (EAS) saw an agreement for thestart of negotiations for the Regional Comprehensive Economic Partnership (RCEP) in 2013.
RCEP is a regional integration initiative in East Asia pursued by ASEAN+6 members including 10
ASEAN members, China, Japan, South Korea, India, Australia, and New Zealand. With this, four
regional integration frameworks are to be negotiated: ASEAN, CJK, and ASEAN+6, along with theTrans-Pacific Partnership (TPP), for which negotiations began in 2010 and Mexico and Canada
joined in 2012.

While many countries in the Asia-Pacific are thus participating in multiple regional integration
frameworks, the contents and rules of each integration framework differ, and so we are entering an
era of intertwined regional integration frameworks. In the Yokohama Vision released in November
2010 at a meeting of the Asia-Pacific Economic Cooperation (APEC) in Yokohama, theprioritization of these different regional integration frameworks were made clear. There, it isconsidered to be possible to achieve the Free Trade Area of the Asia-Pacific (FTAAP), which is theregional integration framework of the 21 APEC members, by “developing and building on ongoingregional undertakings, such as ASEAN+3, ASEAN+6, and the Trans-Pacific Partnership, among
others”. 1 This carries key questions for the future development of regional integration in the
Asia-Pacific: how and why the FTAAP has emerged as the overarching regional integration
framework and the significance of TPP has been underscored, as juxtaposed with the existing East
Asian frameworks. In fact, the expansion of the TPP, in which twelve APEC members are currently
participating, has established a more practical way of providing the momentum for the formation of
an FTAAP, and the TPP development spurred the combination of existing regional integrationplans, ASEAN+3 and ASEAN+6, culminating in the formation of RCEP.

However, until the TPP began negotiations in 2010, the ASEAN Free Trade Area (AFTA) was
the only regional integration framework in the Asia-Pacific region that actually held negotiations
and implemented liberalization. Amidst a proliferation of bilateral FTAs, ASEAN has played the1

http://www.mofa.go.jp/mofaj/gaiko/apec/2010/docs/aelmdeclaration2010_j.pdf.

Japan Center for Economic Research “Asia Research” Report46

rule of the hub of East Asian integration in a manner known as ASEAN centrality through the
integration framework of AFTA and signing a network of ASEAN+1 FTAs as a single actor with
the East Asian countries including Japan, China and South Korea.

This chapter examines how these intertwined regional integration frameworks arose, and what
the new role for ASEAN will be amidst this situation. In particular, while identifying major
characteristics the intertwined state of regional integration exhibits, this chapter attempts to depict
future scenarios through an analysis of ASEAN views on the development of CJK FTA, RCEP, andthe TPP.

1. The conventional features: a domino effect in bilateral FTAs

Before the intertwining of regional integration frameworks took place, the movement of regional
integration in the Asia-Pacific was characterized by a proliferation of bilateral FTAs. They can begrouped into the following four categories: 1) bilateral FTAs centered on Japan with individual
countries of ASEAN; ASEAN+1 FTAs centered on ASEAN (with Japan, China, South Korea,
India, and Australia/New Zealand); 3) FTAs in Northeast Asia including Taiwan centered on China,
and 4) FTAs started by South Korea with the non-Asian large economies including the UnitedStates and the EU. Each of the four types of bilateral FTA has its own central country (or region),but the proliferation of each case can be explained using the domino theory.

One theory often used to explain FTA proliferation focuses on trade diversion from the exclusive
nature of FTAs. In other words, benefits brought to a counterparty of an FTA, such as theelimination of tariffs, generally victimize a third country not included in the agreement. This meansa third country’s products that are more competitive in terms of quality and price will replace the
FTA countries’ less competitive products as a result of the FTA, which will negatively affectconsumers of the FTA countries, while exports from the third country to the FTA countries will beblocked and reduced. 2

While tariff-free privileges will be granted to companies in the FTA countries, third country
companies will be placed at a competitive disadvantage, which will spur business and interest
groups to lobby the government to conclude an FTA, and as a result, FTA negotiations will begin,

2

Viner 1950.

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47

which in turn will cause a domino effect that proliferates FTAs. 3 The important point of thisargument is the difference in economic power of FTA negotiating countries.

As Bhagwati

indicates, all countries do not wield an equal amount of power, one country may be a major powerand have great influence, or provide security guarantees, so we often see a pattern where FTAs
move forward centered on hegemonic powers 4. In the case of FTAs signed by powerful countries,
since certain third countries will have their market access inhibited, trade diversion concerns areborn, which create motivation for a country to conclude an FTA with the same major power. In thissense, even if small and medium sized countries conclude an FTA together, this will not necessarily
cause trade diversion concerns, and even if a major economic power was inhibited as a third
country, it can be said that this major power has nearly no motivation to conclude the same FTAs
as a combative measure. In other words the FTA domino effect will not occur.

An exception to the powerful-country-led domino theory, is the successive bilateral FTAs going
beyond the Asian region initiated by South Korea. The movement by South Korea to sign FTAs
with the enormous markets of the United States and the EU resulted in a situation where Japan,
which competes in major export goods including automobiles and electric appliances in particular,
was forced to follow suit. South Korean exports constitute nearly 50% of GDP, and since the Asian
Financial Crisis in 1997-8, South Korea has implemented an export-led economic growth strategy
taking advantage of the undervalued won.

However, just as South Korean President Lee

Myung-bak stated that “with FTAs signed with 45 countries”—including the United States—“theeconomic territory of South Korea is the best in the world,” 5 FTAs are a particularly important
tool for its trade expansion.

South Korea, with its slogan of “simultaneous multiple FTA negotiations,” has placed a highpriority on the expansion of FTA networks, especially ones with major trading partners. A real
threat to Japanese industry was the FTA concluded between South Korea and the EU. Japanesecompanies had yet to establish extensive production bases in the EU, while the tariff rate oncompeting products was relatively high (LCD TVs: 14%; automobiles: 10%). Preventing pricedisadvantages with South Korea became a major motivational factor for Japan to sign a similar
FTA with the EU. As a result, FTA negotiations began between South Korea and the EU in May
2007 urged the Japanese Business Federation (Keidanren) to call for a Japan-EU EPA the very next3

Baldwin 1996.
Bhagwati 2008, pp. 43-47.
5
Nikkei Shimbun, 31 December 2010.
4

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day. 6 However, the EU judged that an FTA with Japan would not be advantageous to the EU, andso did not respond to Japan’s requests for a long time. For example, of the foreign cars exported to
the EU in 2009, Korean cars made up 12% of the total, while Japanese cars were 36%, andfurthermore it was felt that if tariffs were eliminated for Japanese cars, which had advanced green
technology such as hybrid vehicles, it would be threat to European automobiles. Also, amidst thenormalization of the EU trade deficit with Japan (€32.8 billion in 2008, €19.9 billion in 2009),
about 70% of EU exports to Japan were already tariff-free. As a result, the EU considered thebenefits of an FTA with Japan to be small. 7 However, with Japan’s interest in the TPP, the EU’s
attitude began to change. The EU was interested in regulatory easing in the non-tariff barriers, asseen in the lower level of inbound investment in Japan, and not being able to bid in government
procurement. The EU noticed that easing or eliminating domestic regulations was a major task in
the TPP led by the United States, indicating the EU’s speculation that it could also put theelimination of non-tariff barriers for promoting exports and investment on the negotiating table.
In fact, the EU has chosen potential Asian FTA partners who have participated in the TPP suchas Singapore, Malaysia and Vietnam or signed an FTA with the United States such as South Korea,
so the EU FTA strategy can be seen to have the characteristic of chasing the United States. 8
Accordingly, Japanese participation in the TPP opened the path to an FTA with the United States
and the EU, and thus signifying the response to the request made by exporting industries in Japan tocatch up to Korea’s aggressive approach to FTAs. More importantly, this domino effect is also
connected to the EU and the United States showing interest in an FTA with ASEAN, and the
beginnings of an improvement in the human rights problems in Myanmar, which had been a large
obstacle to this move, also indicates the possibility of an economic partnership between the EU and
ASEAN.
However, the different product coverage and distinctive time framework of liberalization in these
two types of FTAs in Southeast Asia, together with the bilateral FTA networks Japan mainly forged,
would make it difficult for multinational companies as potential FTA users to identify which FTA
at both bilateral and regional levels could be most effective in terms of cost-saving for theirbusiness. Thus, a ‘spaghetti bowl’ effect 9, meaning a large number of rules of origin with specificstandards and involving specific procedures will be formulated, and different rules will be applied
to a single commodity, would be most conspicuously presented in Southeast Asia.
6

Keidanren. 2007.
Nikkei Shimbun, 29 November 2010.
8
Heydon and Woolcock 2009, p.165.
9Bhagwati 2008.
7

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2. TPP and regional integration dominos

As noted at the beginning, the FTAs in the Asia-Pacific region the entered the era ofentanglement of regional integration frameworks, and the domino effect can also be identified as adriving force behind this move. In the domino effect for bilateral FTAs, Japan, China, and South
Korea each played an important role in the different categories, but for the multilateral domino
effect, it is the United States that emerged as a key player that gave influence to the trend. The
United States and China have consequently been promoting competing regional integration
concepts, reflecting their respective preferences over issues to be covered, while the importance ofthe role of Japan as the third largest economy is also rising in the sense of what framework it will
support join. In other words, it would be a completion between Asia Pacific regional integration
where the world’s largest and third-largest economies would be integrated in a discriminatory
trading arrangement and Rast Asia one integrating the world’s second- and third-largest economies

The Obama administration began in the United States, and adopted a “pivot to Asia” policy, andthe emphasis of the foreign policy has been shifting to the Asia-Pacific, stressing the importance of
the TPP as a major trade policy. Secretary of State Clinton stated that the United States will
strengthen its economic leadership in order to maintain its strategic leadership in the Asia-Pacificregion 10 , signifying America’s determination to strengthen involvement in the TPP byincorporating as many participating countries as possible to build the desired economic order in theregion. Ian Bremmer, who leads the Eurasia Group, a powerful political consulting company, statedthat “Japan should join hands with the United States and strive to nurture the TPP into a new WTO.
If the TPP becomes a strong presence, China will eventually have no choice but to submit to its
rules.” 11 This statement indicates that today, with WTO liberalization negotiations bogged down,
there is the idea in the United States of giving the primary role of promoting liberalization of tradeand investment to the TPP, and also informs that China has a large presence behind the UnitedStates intention to proceed with economic leadership.
In 2008, the United States expressed its desire to formally join the TPP, and thisdecision was premised on the United States belief that, as stated by US Trade
Representative (USTR) Ron Kirk, “the number of trade agreements in the Asia-Pacificthat exclude the United States has proliferated, shutting American business and
10
11

Bangkok Post, 17 November 2012.
Nikkei Shimbun, 22 October 2012.

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workers out of valuable opportunities.” 12 In the United States government, there were those
who believed that China’s promotion of “low-quality” FTAs in Southeast Asia was spurring the“spaghetti bowl” effect, which had the possibility of raising trading costs for businesses, and even
if the East Asian regional integration is not achieved, that fact that it is being constantly discussed
in East Asia is promoting the “marginalization” of the United States. Also, there emerged a viewthat instead of criticizing that, it would be desirable to promote trade policy in lines with the trend
in East Asia and build up its own regional integration plan. On this point, one National Security
Council (NSC) official stated, “We felt that if other countries were getting credit for offering their‘pie-in-the-sky’ FTAs, we should try to score points for our own ‘pie-in-the-sky’ FTA proposal.” 13This implies that the United States announced it would promote FTAAP, or an APEC-wide FTA in2006 with a belief that the plan was not even thought to be realistic, and was ultimately a symbolicidea to challenge the Chinese growing influence in East Asian trade politics.

Although the view that the FTAAP was infeasible, American policymakers were also frustrated
by the criticism that the United States was disengaged from the East Asian FTA movement while
China enjoyed credit for promoting “low quality” FTAs in Southeast Asia. For instance, Americanindustry bodies such as the National Association of Manufacturers and the United States Chamberof Commerce and Industry voiced their fears about the exclusion of the United States as a result of
the rising tide of East Asian regionalism. 14 Eventually, the United States began to use the FTAAP
concept to change the discourse, or at least to change the expectation of where the politics ofregional trade would be headed in the future. 15
FTAAP negotiations will not, of course, commence any time soon, nor have the norms
by which APEC operates changed, but the larger goal of the FTAAP is reflected in theannouncement by the United States of its intention to participate in the FTA formed in2005 among Singapore, Chile, New Zealand, and Brunei, known as the TPP.
Accordingly, the primary motivation for the United States to join the P4 was not to secure an export
market. In fact, the fraction of US trade in the Pacific rim that was with the eight countries that
arrived at the first TPP negotiating table in 2010 was 17%, and the fraction of US trade with theworld that was with these countries was not even 6%. Assistant US Trade Representative Cutler
considered that the greatest reason the United States turned its eye to the P4 was its high quality in
12

Kirk 2009.
Searight 2011, pp.59-60.
14Jiji Press. 5 February 2008.
15
Terada, 2011.
13

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the form of eliminating tariffs for all items by 2015, and thus would be an “FTAAP prototype.” The
quality was high, but the number of participating members was low. Thus, the United States began
to express interest in increasing the membership of the TPP. For example, at the first round of TPP
negotiations in Melbourne, New Zealand Trade Minister Groser stated that the added value of the
TPP to the United States would grow the more member countries there were. In other words, theUnited States was starting to take the strategy that through more APEC members joining, a “criticalmass” would be formed, causing the cost for other members of not participating would grow, andresulting in a further increase in membership.

The United States recruited the participation of as

many countries as possible in the “WTO-Plus” FTA that it is seeking, and it can be said that it build
a means for countering the regional integration plan proceeding in East Asia. In fact, with theparticipation of the United States, the countries of Australia, Peru, and Vietnam joined at aroundthe same time, followed by Malaysia, Canada, Mexico and, finally, a big economy such as Japan.

One of reasons the United States is interested in the TPP has to do with China, which is being
kept in mind as the “shadow negotiating partner” of the TPP. For example, in April 2011, six
industry groups sent a letter to US Trade Representative Kirk requesting that a punitive obligatory
provision with legal binding force be added to the TPP in response to overseas state-influencedentities that improperly obstruct the economic activities of private businesses. Althoughstate-operated corporations even exist in highly liberalized countries such as Singapore, a US
business participant stated that “limiting business practices and subsidies to state-owned
corporations through the TPP would act as a weight on the activities of Chinese businesses in the
Asian market, and in the future, will provide a policy framework that will be the cornerstone oftrade negotiations at the bilateral, regional, and global level with China.” 16 In other words, it canbe understood that there exists in the United States a sense of hope that the TPP will be a means for
applying legal shackles to China, which proceeds with business practices that are not free capitalist
ones. The participation in the TPP by Vietnam, as another socialist country where state-operated
enterprises are rampant, is imagined by the United States to play the role of a virtual China.

China became concerned about these moves, and acted to promote the regional integration
frameworks other than the TPP. It is not easy for China to participate in the TPP, as China would
be required to guarantee that foreign companies get equal treatment with China’s state-owned
companies, an issue that China is highly unlikely to go along with. Thus, the progress ofnegotiations while the TPP membership increases, is not a desirable situation for China. In fact,
16

Solis 2011.

Japan Center for Economic Research “Asia Research” Report52China’s concerns about the negative impact the TPP might have on its regional integration policy
were so strong that when Japan initially expressed an interest in joining the TPP in 2010, China
quickly became more flexible in its own talks with Japan. For example, China accepted a proposal
from Tokyo to conclude a trilateral investment agreement first among China, Japan and South
Korea (a framework that Beijing had previously resisted due partly to the required protections forJapanese and South Korean investors). As this was viewed as a prerequisite for the trilateral FTA
which China was keener to promote to secure Japanese market. China has also been moving awayfrom its exclusive pursuit of an ASEAN+3 regional framework, toward greater interest in the
ASEAN+6 framework, which was Japan’s preferred arrangement. These two Chinese concessions
led to the start of official negotiations for the CJK FTA and the RCEP, in 2013.

In short, American strong involvement in the FTAAP and TPP has influenced the regional
integration of many countries including China This has also encouraged the possibility for an FTA
involving Japan and China, and has played a role in accelerating the trend toward East Asian
regional integration. The United States’ trade strategy to incorporate certain East Asian countries
has lead Japan and China to engage in cooperation and move past their competitive view of one
another, and so the possibility exists that the“external pressure”seen in TPP progress will nudge theEast Asian regional integration process forward.

3. RCEP and regional integration dominos

As discussed above, a major force behind the emergence of the tangle of regional integration
initiatives in the Asia-Pacific is that the United States and China have been promoting competing
regional integration concepts, reflecting their respective preferences over issues to be covered.
Though the United States long remained on the sidelines of East Asian integration initiatives, it is
now seeking high-quality "WTO-plus" regional integration through TPP, while China's
commitment to regional integration frameworks such as RCEP is strongly oriented towards
developing countries and would contain more exemptions in the form of tariff elimination duties,
with few deregulation requirements that would demand the reform of domestic economic systems.
This also means the United States and China will continue to compete against each other over tradeand investment rule-making in East Asia and the Pacific. Japan, as the third largest economic power,
will join with, or which it will join with first will lead to an expansion in the size of integration, andso as seen in the Chinese concessions and EU interest in an FTA with Japan mentioned earlier, it ispossible to find a role as a balancer influencing the directionality of the intertwined regional

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integration. In other words, it can be noted that the global economic powerhouses are colliding interms of their own national interest and are promoting regional integration that each desires, which
is a factor that has led to the proliferation of regional integration frameworks in the Asia-Pacificregion.

As is depicted in the diagram, the central position of ASEAN was the characteristic of thefounding of separate regional institutions each having a summit meeting (the EAS in the case of
ASEAN+6) while expanding concentric integration frameworks centered on ASEAN, or in otherwords, expanding the membership from ASEAN to ASEAN+3 and then ASEAN+6. However, theword “center” can be easily misunderstood. This is because this does not signify that ASEAN has
been actively promoting liberalization of trade and investment and has been promoting regional
integration, much less that a regional integration concept or process schedule including major
extra-regional countries such as Japan, China, and South Korea has been created. The mainfunction of ASEAN’s centrality has been to provide venues for meetings such as conveniently
hosing summit and ministerial meetings. Particularly since 2011, the American President now visitsSoutheast Asia at least once a year to participate in the EAS meeting, and so ASEAN is
maintaining the function of providing an opportunity for the leaders of the United States and China
to participate in a multilateral forum.

The problem with the concentric circles of this regional integration concept is that if ASEAN
does not move, the integration of ASEAN+3 and ASEAN+6, which include extra-regional majorcountries, would also not move. Former Singaporean Prime Minister Goh Chok Tong once stated,
if liberalization is sought through the WTO, APEC, or the like, it devolves to the lowest common
denominator, and so the actions of liberalization-oriented countries are fettered by countries that do
not desire liberalization. The least enthusiastic country ends up holding back the base of tradeliberalization, becoming a large obstacle to promoting regional integration. 17 If liberalization isconducted unilaterally, the free rider problem arises in which a country keeps the barriers to theentry of imported goods high while freely sending export goods to the market of another country
that has lowered those barriers. Especially in the case of competing products, there is theunderlying possibility of this becoming a domestic political problem due to threatening
employment. Based on this, a major reason why negotiations of East Asian integration thatconverges the five ASEAN+1 FTAs while bringing them into effect have not started thus far is that
ASEAN has been reluctant as its role as a hub in the ASEAN+1 FTA networks would be reduced.
17

Terada 2005.

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The fact that Japan and China, which had until then been competing over whether ASEAN+3 or
ASEAN+6 should be the framework for East Asian integration, set their spears aside in August
2011 and jointly proposed the founding of a working group to promote the liberalization of tradeand investment under both frameworks stems from concerns on the part of both countries that while
TPP negotiations are proceeding, East Asian integration frameworks would not make progress if it
was left up to ASEAN. 18

The agreement between Japan, China, and South Korea to start FTA negotiations independent
from ASEAN+3 has also acted as a worrisome development as it would exclude ASEAN. The startof negotiations towards the unification of an enormous market in Northeast Asia with a total GDP
among the three countries of $754 billion (2011) signified the appearance on ASEAN’s doorstep ofa tremendous magnet for eliciting FDIs, casting a shadow on ASEAN’s investment market. This
accelerated ASEAN’s intention to promote integration, urging ASEAN to have a stronger interestin strengthening its role as a FDI magnet. 19 This measure dissolved the “lines” of ASEAN+1 FTAs
with six countries, as it decided to aim for a free trade agreement in the form of East Asian regional
integration comprising 16 countries, namely the formation of the RCEP. More importantly, in orderto break through the ASEAN+1 shell and promote integration with extra-regional major countries,
the completion of the AEC should be accelerated, and a unified market of 600 million people must
be quickly formed. However, Japan, China, and South Korea well understood such concerns on
ASEAN’s part about the negative impact arising from the formation of the CJK FTA, and so
Chinese Commerce Minister Chen Deming emphasized that the CJK FTA was an open one, andSouth Korean Trade Minister Bark Tae-ho also indicated that information on the contents of thenegotiations would be shared with ASEAN. 20 An important point in such a change from bilateral
FTAs to regional integration is the expansion of countries that are the subject of cumulative origin,which has the benefits of increasing the number of goods for which no tariff is applied, simplifying
the rules for that purpose, and ultimately contributing to an expansion in exports, as Japan’s
Ministry of Economy, Trade and Industry also emphasizes this point. 21

Another factor causing ASEAN to more strongly push on with the need for a single market is the18

Author’s interview of official at Ministry of Economy, Trade and Industry, 26 December 2011, Tokyo.
Ministry of Foreign Affairs (Singapore), 2012.
20
http://www.jetro.go.jp/jfile/report/07001118/asean_economics_minister_meeting.pdf
21
Ministry of Economy, Trade and Industry (2012). Vietnam is importing almost all of its raw silk, which is thestarting material for textiles, from China, but, for example, this was not able to satisfy the rules of origin of theASEAN-India FTA. However, there is the observation that if the RCEP comes into force, this problem would
likely be solvable.
19

Chapter 3 | Intertwined Regional Economic Integration and ASEAN
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TPP development, for which negotiations have been actually progressing since 2010. As indicatedin the diagram, the TPP splits ASEAN by skewering the concentric circle shaped centered on
ASEAN. Since Thailand expressed the intention to participate in 2013, the likelihood of there being
five participating countries from ASEAN increased. This problem would also cast a doubt on
ASEAN’s capability to continue to place a higher priority on the ASEAN centrality, resulting in astronger impression of an ASEAN rift. Indonesian Trade Minister Gita stated, the TPP is not athreat to ASEAN, and the selection of integration framework differs according to the conditions ineach member of ASEAN, but since the TPP allows virtually no exceptions to tariff elimination,
Indonesia would have many problems and so there are no plans to participate. 22 This statement
indicates that as a result of the advent of the TPP, countries sharing a vision for regional integration
will proceed with domestic reforms and a high level of liberalization within ASEAN would
participate, and that the “lowest common denominator” approach to liberalization will no longer beapplied.

4. Conclusion: The future of ASEAN and intertwined regional integration

Lastly, the future of ASEAN amidst the entanglement of regional integration frameworks is
examined. ASEAN has the characteristic of being considered a collection of developing countries,
lacking a political and cultural sense of unity. This is why the “ASEAN way” was employed, while
putting importance on voluntarism and avoiding legal binding force as much as possible foe
regional cooperation. Accordingly, no penalties have actually been applied for non-fulfillment of
ASEAN’s collective decision, allowing for exceptional measures taken individually. This
represents the difficulty in participating in very high level integration programs like the TPP that
include provisions relating to labor standards and environmental regulations. The former would
potentially require members to abide by standards set by the International Labor Organization,
including freedom of association and collective bargaining. Consequently, voices appealing to theneed to abandon the “ASEAN way” are beginning to be heard, for example, ASEAN Secretary
General Surin, whose five-year term ended at the end of 2012, considered that if there is no strong
centralized power mechanism, it is very difficult to survey and coordinate all problems that could
become serious matters, 23 and he stressed the need to strengthen the authority of the ASEAN
Secretariat like in the EU, and to tighten the regulation of participating members.

22
23

Nikkei Shimbun. 20 November 2011.
JETRO, 1 August 2012.

Japan Center for Economic Research “Asia Research” Report56

As a further characteristic of ASEAN, the fact that regional integration as defined in theEuropean style of producing for its own consumption is not being emulated can be identified. As
noted by Sally, ASEAN integration is just a fragment of a supply chain deployed at a global levelby multinational corporations. 24 ASEAN is inevitably dependent on economies outside the region
for growth through FDIs and exports, as economic cooperation from major powers outside theregion is essential to ASEAN’s further growth. For example, in the middle of the 2000s
approximately 80% of ASEAN trade was with countries outside the region, while intra-ASEAN
trade of Indonesia and the Philippines, which account for about 60% of the ASEAN region’s
population, was less than 10% and less than 6% respectively 25. Accordingly, amidst the Western
export markets cooling down due to the global financial crisis, it has become clear since the crisis
that integration incorporating major markets outside the Southeast Asian region such as Japan,
China, and South Korea is needed and thus RCEP is desirable even for ASEAN. Furthermore, notjust tariffs, but many non-tariff barrier problems, for example the import quotas as introduced inIndonesia, are left untouched in ASEAN, and so there is a lack of unified mechanisms forregulatory easing for the trade and investment sustained by each country. As a result, there is therecognition in the business society in Southeast Asia that ASEAN is a loose collection of 10
countries with 10 different sets of economic rules. 26

Furthermore, the so-called “ASEAN divide” problem of intra-regional disparities that has been apending issue since the latter half of the 1990s when the Indochinese countries joined ASEAN hassignified the constant presence of rules for the advanced members and for the other members, andthere is long-term difficulty in promoting integration at the same pace. If ASEAN, with thesecharacteristics and problems, actually sets forth with regional integration negotiations, it will nolonger be able to easily play the role of a promoter. For example, with regards to the contents of the
RCEP, Singapore and Malaysia call for a comprehensive range of liberalization including not only
goods but also services and investment, whereas Indonesia, to which cheaper Chinese goods are
flowing, causing strong anxiety over a ballooning trade deficit with China, takes a position of
opposing FTAs with higher and deeper liberalization rates.

In this way, in order for ASEAN to create the state of ranking among the extra-regional powerfulcountries in negotiations and the like as a unified economic actor, it is necessary to clear a variety

24

Sally 2010.
Pang, 2007.
26
Hutagalung 2010.
25

Chapter 3 | Intertwined Regional Economic Integration and ASEAN
57

of hurdles. Also in recent years, political and security problems are arising. For example, China’s
territorial disputes with Vietnam and the Philippines in the South China Sea are souring.
Similarly to the Japan-China-South Korea FTA problems mentioned earlier, the possibility that theexistence of these political and security problems will have a negative impact on the progress ofnegotiations such as a postponement of holding a conference cannot be denied. Furthermore, large
amount of aid is entering into Cambodia, Laos, and Myanmar from China, has greatly affected theoperation of ASEAN. For example, Cambodia, the 2012 ASEAN chair, ran the proceedings in a
direction in accordance with the wishes of China with regards to the problems in the South China
Sea. This provoked a reaction from the Philippines and Vietnam, which are opposed to China’s
assertions in this sea. At the Asia-Europe Meeting held in October of the same year in Laos,
Premier Wen Jiabao from China, which wants to move Laos to promote it for meetings andoperation, was sitting beside the Laotian Prime Minister, who was also the chairperson. This was ananomalous situation that went against accepted custom. 27 After Cambodia, the next ASEAN chair
country is Brunei, followed Myanmar and Laos. Thus, there is a string of CLM countries, and so
not only will the topics of debate for promoting integration be about developing countries, but it
cannot be denied that there is the possibility that the ASEAN meetings will be run in a manner thatis in accordance with China’s wishes. This can be noted as a new problem point for ASEAN
centrality in terms of providing dialogue and opportunities.

However, amidst the situation of exports to Western markets not being expected to rise due tothe global financial crisis, the allure of the ASEAN market is sparkling yet more. In the first half of2012, $1.4 billion in capital flowed to ASEAN offshore funds, while net outflows to Chinese andIndian offshore funds were recorded at $1.6 billion and $185 million respectively, and so the hopesof global investors is being attracted. There are even reports from a positive perspective that the
AEC would form a $2 trillion market realizing the free flow of goods, services, investment,
workers, and the like. 28 In order not to disappoint these global expectations, it is vital for ASEAN
to act as a more powerful single actor, and to achieve this, fundamental reforms such as the early
implementation of the AEC, the expansion and reinforcement of the Secretariat, and the easing of
the “ASEAN way” are called for.

27
28

Nikkei Shimbun, 19 November 2012.
Reuters, 1 August 2012.

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