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THERE
are stresses on the performance of Factory
Asia that block intra-Asia free trade, write
economists Masahiro Kawai and Ganeshan Wignaraja
in their Asia Development Bank Institute
Working Paper. Most notable, they say, are
the consequences of the global financial
crisis, the risk of protectionism, the persistence
of residual behind-the-border regulatory
barriers and the failure to conclude ambitious
WTO multilateral trade negotiations as well
as the relative exclusion of small and medium-sized
enterprises (SMEs).
Over
the last three decades, the East Asian economies,
they say, have substantially liberalised
foreign trade and direct investment (FDI)
regimes within the frameworks of the General
Agreement on Tariffs and Trade (GATT)/World
Trade Organisation (WTO) and the Asia-Pacific
Economic Cooperation (APEC).
The
resulting expansion of trade and FDI has
become the engine of economic growth and
development in East Asia. Traditional trade
and FDI flows have been increasingly replaced
by a new form of industrial organisation
centred on global production networks and
supply chains, they said.
The
slicing of production stages across geographical
space in cost-effective locations has spurred
East Asia's global rise to the converted
"Factory Asia" league with rapid
growth over a long period.
Factory
Asia has made East Asia more prosperous
than ever before and is transforming the
world economy. In recent years, however,
various stresses to the performance of Factory
Asia have emerged.
Following
the Asian financial crisis of 1997–1998,
East Asian economies have embarked on various
initiatives for economic integration and
cooperation in the areas of trade and investment.
The crisis prompted the regional economies,
which were becoming increasingly interdependent,
to realise the importance of economic cooperation
among themselves and to make efforts to
institutionalise such interdependence. An
important aspect of East Asia's policy response
concerns an evolving trade policy centred
on free trade agreements to support the
functioning of Factory Asia.
The
simplest definition of economic integration
is a degree of economic exchanges such as
the movement of goods, services, capital,
and people between countries.
A
more policy-focused definition would be
an arrangement in which countries agree
to coordinate their trade and other policies.
Economic integration can be prompted by
a process where barriers East Asia is defined
as the Association of Southeast Asian Nations
(ASEAN)-10; the PRC; Japan; the Republic
of Korea; Hong Kong, China; Taipei, China
and India.
Today,
there are varying degrees of economic integration
ranging from participation at the WTO or
preferential trade agreements to the formation
of a monetary and economic union by a group
of countries.
Trade
integration is one objective. It can refer
to trade openness in general or to membership
in specific groupings of countries, such
as the World Trade Organisation (WTO) or
specific free trade agreements (FTAs). Both
aspects are considered here. The openness
of an economy is the degree to which nationals
and foreigners can transact without state
imposed costs that are not imposed on transactions
among domestic citizens.
There
have been a large number of studies aimed
at untangling the relationship between trade
openness. Empirical work of the last 15
years has concentrated on cross-country
and panel regression analyses. Many have
concluded that openness to trade is a significant
explanatory variable for the level or the
growth rate of real GDP per capita.
Multilateralisation
of regional free trade agreements - through
liberal cumulation rules and eventually
a merger of various overlapping FTAs in
Asia into a large region-wide agreement
- would provide greater market access for
goods, services, skills, and technology;
larger market size permitting increased
specialisation and realisation of economies
of scale; easier foreign direct investment
and technology transfer by multinational
corporations and SMEs; simpler trade and
investment rules; inclusion of small, low
income economies in the region's wider trade
agreement; and insurance against protectionist
sentiments.
A
region-wide FTA in Asia could arise from
a series of linked agreements covering varied
issues and participants. Two competing processes
are emerging as the future basis for a region-wide
FTA: a Regional Comprehensive Economic Partnership
(RCEP) among the ASEAN+6 countries (the
10 ASEAN economies plus Australia, the PRC,
India, Japan, the Republic of Korea, and
New Zealand); and the Trans-Pacific Strategic
Economic Partnership (Trans-Pacific Partnership,
or TPP) agreement among 12 economies (Australia,
Brunei, Canada, Chile, Japan, Malaysia,
Mexico, New Zealand, Peru, Singapore, the
US and Vietnam) currently awaiting full
ratification by all parties.
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