Asia’s RTA: Two Alternative Models

1. Asia’s RTA: Two Alternative Models Jang-Hee Yoo Professor Emeritus, Graduate School of International Studies Ewha Womans University Seoul, Korea

2. CONTENTS • Introduction • Required Conditions for Regional Economic Integration • Challenges in Asian 3+5 Model • Possible Solutions • APEC (Asia-Pacific Economic Cooperation) • Conclusion

3. Introduction 1) Conventional Wisdom - RTAs tend to stimulate multilateralism 2) Mixed relations between internal trade (IT) and external trade (ET) – WTO (2004) Study EU: IT<ET NAFTA: IT>ET ASEAN: IT>ET 3) Nevertheless, RTA Global Trade 4) Therefore, many argue that RTA should be formed in the East Asian region, including China, Japan, and Korea

4. Required Conditions for Regional Economic Integration • Salient Objectives - European Union (EU): economic integration - AFTA and NAFTA: intra-regional free trade

5. Required Conditions for Regional Economic Integration (cont’d) 2) Binding Force - EU: economic similarities - ASEAN: quest for economic security 3) Economic Size - GDP, trade volume, and population size, etc.

6. Required Conditions for Regional Economic Integration (cont’d) <Table 1> Likeness in EU Members (2005) Source: World Bank, World Development Indicators, 2005

7. Required Conditions for Regional Economic Integration (cont’d) 4) Stabilizing Mechanism • Establish a stable intra-regional cooperation for the successful development of regional economic integration • Internal stabilizing mechanism :EU (Germany), NAFTA (USA), China-ASEAN FTA (China)

8. Asian 3+5 Model • Salient Objectives - expanded version of AFTA - economic cooperation and trade liberalization, leaving aside other non-economic and political objectives

9. Asian 3+5 Model (cont’d) 2) Binding Force - Common historical interest - Common “Asiatic” market economy

10. Asian 3+5 Model (cont’d) 3) Economic Size <Table 2> Economic Indicators for 3+5 Countries (2005) Source; World Bank, World Development Indicators, 2005

11. Asian 3+5 Model (cont’d) 4) Stabilizing Mechanism - Japan? - China? 5) Non-economic Factors - Diverse religions, different languages, and different races - Historical background of the Asian region - Differences in political ideology

12. Possible Solutions • Build trust among the Asian countries - Promote cooperation among the member countries - Bring more countries into the economic integration

13. APEC Model • Established in 1989 • Goal: - To advance economic dynamism and sense of community within the Asia-Pacific region - To promote open trade and practical economic and technical cooperation - Free Trade by 2020 (2010 for developed economies)

14. APEC Model (cont’d) < Table 3> Economic Indicators for APEC Member Economies (2005) Source; Economic Fact Sheets, http://www.dfat.gov.au/geo/fs The APEC Region Trade and Investment 2005

15. APEC Model (cont’d) <Table 4> APEC Shares in World GDP and Trade (2005) Source; Central Intelligence Agency The World East Bank Asian Development Bank; Bank of Thailand; ASEAN; CIA Fact book The APEC Region Trade and Investment 2005

16. APEC Model (cont’d) <Table 5> Share of Intra/Extra Export and Import of APEC Member Economies Source; IMF, Direction of Trade Statistics, 2006

17. APEC Model (cont’d) <Table 6> Main Export Shares of APEC Member Economies (2003, %) Source; UN, International Trade Statistics, 2003

18. APEC Model (cont’d) <Table 7> Effects of Tariff Removals in Two Scenarios (CGE model) Notes; (1) Benchmark year, 2004 (2) Model Used = Global CGE Model based upon the assumptions of perfect competition, full employment. (3) The % figures indicate an increase in trade volume from current level as a free-trade regime is introduced to two different cases.

19. Conclusion • Asian 3+5 and its limitations • APEC as a solution resolving the challenging obstacles of Asian 3+5 • APEC action plans by 2020