'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.
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.
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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
THANONG KHANTHONG
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