# **From market-based to institutions-based regionalism**

Given the extreme supply-side integration of the region, conflicts within a country or among countries of the region may pose a threat to the competitiveness of ASEAN, Chinese, Japanese, and Korean firms in European and U.S. markets. For example, a serious commercial dispute between, say, Malaysia and Thailand or Indonesia and Malaysia might hinder the production of Japanese firms. Any such conflict would make it difficult for Japanese firms to provide low-cost, high-quality products in third markets in a timely fashion. The same is true for ASEAN, Chinese, and Korean firms (see Baldwin 2006a).

**_Unlike the European Union or the North American Free Trade Agreement region, intra-regional trade expanded in East Asia without the formation of preferential regional trade agreements._** The ASEAN Free Trade Area was the only major free trade area (FTA) until Japan and Singapore enacted the JapanSingapore Free Trade Area (formally, the New Age Japan-Singapore Economic Partnership Agreement) in 2002. Market-driven regionalization seems to be giving way to institution-driven regionalization; a large number of attempts have been made to establish regional preferential agreements not only among countries in the region, but also with countries outside the region (see figure 29). ASEAN as a group has become active in discussions on FTAs with other countries in recent years. ASEAN and China enacted an FTA in goods in July 2005, and they are currently negotiating an FTA in services. ASEAN is also negotiating FTAs with Japan, Korea, and others.

<!-- Start of picture text --> Figure 29 FTAs in East Asia<br>a. In action as of April 2006 b. Under negotiation as of April 2006<br>Macao, China<br>China Brunei Darussalam Cambodia European Free Trade Association European Free Association Trade CambodiaMyanmarBrunei DarussalamHong Kong, China China Canada<br>Korea,<br>United States<br>Thailand AS Korea AS Mexico<br>E E<br>ASEAN Malaysia Philippines Myanmar Lao PDR ANFree Taiwan, China United StatesPanama A S E A N ThailandMalaysia AN Free<br>T Chile<br>Hong China Kong, Indonesia Singapore Tra Mexico Chile Philippines r ad New Zealand<br>Vietnam de Japan Indonesia e Panama<br>A Ag Australia Peru<br>re Australia Japan Singapore r e Qatar<br>India a New Zealand Lao PDRVietnam emen t Kuwait<br>India Sri Lanka<br>Source: Based on data in ADB 2006.<br><!-- End of picture text --> There are many reasons behind the recent surge of FTAs in East Asia. First, the rapid expansion of such areas in other parts of the world has made the East Asian economies realize the importance of establishing FTAs to maintain and expand their export opportunities. Second, a stalemate of the negotiations under the Doha Development Agenda turned the attention of the members of the World Trade Organization with an interest in trade liberalization toward the advantages of FTAs. Third, the Asian financial crisis in 1997–98 prompted East Asian economies to more awareness of the need for regional cooperation through initiatives such as FTAs to avoid another crisis. Fourth, rivalry among East Asian economies over leadership in the region has activated strategies involving FTAs.

It is too soon to quantify the impact of FTAs in the region. The ASEAN Free Trade Area has been useful for low-income countries such as Cambodia and the Lao People’s Democratic Republic because it has brought them into a more open regional trading system prior to accession to the World Trade 29