'Asean+3' in regional cooperation talks
July 29, 2000
Senior officials from Asean plus China, Japan and South Korea have met to discuss further progress on regional economic cooperation. The make-up of this "Asean+3" mirrors the structure of G-7, making it the most active regional grouping outside Europe.
It is no secret that the Asian countries are working to strengthen their integration. It appears they have made the fastest progress in monetary cooperation through the Chiang Mai Initiative.
This currency-swap agreement will deter foreign speculators from attacking the regional currencies. Member countries will make their foreign-exchange reserves available to each other as credit lines during times of liquidity crisis. The arrangement foreshadows the creation of an Asian Monetary Fund, an institution that might evolve to help safeguard regional financial order.
Moreover Asean is planning to integrate its economy with the Closer Economic Relations of Australia and New Zealand. Combining the two trade blocs will enhance the competitiveness of all participating countries.
According to a study, "Economic Benefit from an Afta-CER Free Trade Area - Year 2000", the gains from the combined free-trade area will amount to US$48.1 billion (Bt1.93 trillion) in gross domestic product over the 2000 to 2020 period. The report also said benefits would translate to $25.6 billion for Afta and $22.5 billion for CER.
Furthermore a proposed North-East Asia Free Trade Area comprising China, Japan and South Korea is being studied and might merge with Afta into a grouping that covers the whole of the East.
The emergence of Asean+3 will split the world into three economic blocs, the other two of which are the North American Free Trade Area (Nafta) and the European Union (EU). Asean+3 is created inside the larger mould of the Asia-Pacific Economic Cooperation, of which the US is also a member.
So why this Asian regionalism all of a sudden? According to Fred Bergsten, director of the Institute for International Economics in Washington, DC, the drive toward closer economic and political integration among Asian countries is manifested in four pillars.
The first is the East Asian financial crisis. Asian countries have come to realise that when it comes to the next crisis they will have only themselves to rely on.
Second is the slow pace of progress of trade liberalisation under the World Trade Organisation (WTO). The collapse of the talks in Seattle shows that the rest of the world has been held hostage by the interests of the United States and the EU, who command the agenda.
The third element has been the impressive diplomacy, cooperation and implementation that characterised the EU integration process. It has become a positive inspiration for the Asian countries. If there is going to be an Asian integration, it will be modelled after the European one.
Fourth, the Asian countries are disappointed with the US and the EU in dealing with the regional financial crisis, triggered by the baht devaluation in 1997. During the crisis, both the US and the EU, or the G-7 countries, made very little effort to address the Asia crisis. They viewed the crisis as a regional problem that would not have any impact on their economies or financial markets.
Despite the diversity and different levels of development of East Asian countries, the region has made substantial progress in its institutional development and in advancing towards its goal of free and open trade.
Deputy Prime Minister Supachai Panitchpakdi has said he supports an initiative to establish an Asian common currency, similar to the launch of the euro. If Asia had its own common currency, it would be able to increase financial stability within the region and undercut the predominant role of the US dollar as a major medium of financial transactions. The creation of the euro has already begun to challenge the mighty US dollar.
In addition, foreign direct investment in Southeast Asia decreased substantially from US$21.1 billion in 1997 to $16.8 billion in 1998 and $13.3 billion in 1999 despite the improvement of the region from economic crisis last year, said the Asean Annual Report. Moreover, China's entry into the WTO has posed a challenge to Southeast Asia because of its huge market attracting foreign investment.
The report, therefore, encouraged Asean governments to strengthen their competitiveness by promoting regional economic integration to implement a free-trade area effectively to attract foreign direct investment. Such investment is needed because it has been the key factor in the region's economic growth.
As a proportion of total East Asian trade with the world, intra-East Asian trade has risen from 33 per cent in 1980 to 50 per cent in 1998, according to an Asean statement.
This suggests that integration will further fuel trade within the region, helping it to rely less on the US or the EU for export markets.
The Asean economic ministers will take up the recommendations of a task force on the study of the Afta-CER trade link-up and cooperation between Asean and the three North East Asian countries.
These events will have far-reaching implications for the structure of global trade and finance in the decades to come.
BY NARANART PHUANGKANOK and