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World Bank Report on East Asia's Integration
Countries of East Asia face a substantial challenge to sustain income growth and poverty reduction in today's competitive global economy, as they continue to recover from the 1997 financial crisis and to adapt to China's emergence as a major world and regional trader. But even as they make decisions about the pace and extent of change needed to compete in the new East Asia, governments also face fundamental challenges to ensure that the benefits of regional and global trade are shared more evenly, among and within countries and social groups.

These challenges can be met if action is taken to promote formal economic cooperation through trade and investment liberalization, consistent with a strong development orientation, according to the World Bank's latest research on trade in East Asia. East Asia Integrates: A Trade Policy for Shared Growth, released today in Singapore, urges that this emerging, complex agenda, be addressed through an integrated regional trade strategy for East Asia  one that is more open and equitable than in the past.

"Increasingly the development agenda in the region  with its focus on growth, jobs, and social stability  and the trade policy agenda  with its focus on market access and competitiveness  have become intertwined," commented Jemal-ud-din Kassum, Vice President for East Asia and the Pacific Region at the World Bank. "Economic integration is a growing force, and we want to make sure it is managed carefully so that its benefits can be broadly shared by poorer countries and the poor within countries."

With negotiating positions being developed for the Doha development agenda and an array of regional and bilateral arrangements, Mr. Kassum emphasized the importance for countries to act now. "The stakes involved are high. By some estimates, if the policies discussed in this volume of research  especially on agriculture, services, logistics, and trade facilitation  were implemented by the countries in the region, annual benefits amounting to roughly US$300 billion or 10 percent of GDP could be realized within a decade, and benefits could be even higher if a global trade agreement is reached. If properly shared, this would mean over 50 million fewer poor (at $2/day). But to get there, we must move from debate and academic discussions to the real world of negotiations and concrete policies."

East Asia Integrates urges policymakers to broaden their approach beyond the technical perspective of trade policy to emphasize development outcomes and links to social stability, in their national development strategies, in their regional and bilateral agreements and in their global negotiating positions.

Countries must operate on three levels, the research suggests: internationally, they can influence multilateral negotiations, and should pay particular attention to standards and to liberalization in agro-industries and services. Regionally, they can achieve deeper integration to promote regional production networks, and broader integration with scope for gains in agriculture and other sensitive sectors. Nationally, they need to take a more comprehensive approach to policy by adopting a consistent development strategy addressing logistics, environment and labor standards and poverty reduction as well as trade liberalization.

Homi Kharas, Chief Economist of East Asia and co-editor of the report, said, "Pursuit of a trade for development' strategy in East Asia is a must, but it will not be easy. Trade for development means moving beyond narrow business interests focused on protecting specific subsectors. It involves economic change, at a time when policymakers are trying to manage major financial and corporate restructuring, repair overstretched social safety nets, respond to the challenges posed by China, listen to the greater plurality of voices and interest groups competing for political power, and adapt to sometimes vicious global economic cycles. And because stability is seen as a key to investor confidence and a return to high growth, it is not surprising that there is resistance to still further change."

Change, however, is essential, he said. While East Asia's growing share of world exports now about 19%  has corresponded with improved welfare and poverty reduction, the link between trade and development outcomes has varied sharply over time and across the region. "Mildly rising inequality within countries including China, Vietnam, and the Philippines, and also a widening income gap between richer economies such as Singapore and Hong Kong (China) and the poorest, Laos and Cambodia, is a growing concern to policymakers interested in a stable, prosperous region."

These concerns can be addressed by suitable regional agreements and complementary national policies that build upon poverty reduction strategies. Empirical evidence on how trade policies affect different groups in society must be brought more squarely into the policy debate in East Asia. For example, while the overall impact of China's accession to WTO is hugely positive, a few households in some rural counties could actually be made worse off.

Dr. Kharas commented, "Poor producers are not only economically disadvantaged but often politically powerless and when their interests are pitted against those of more powerful actors, they usually lose. Policymakers need to design a set of measures that enable the poor to take advantage of greater trade opportunities. For example, our analysis suggests that if cashmere quality could be raised along with more open trade, Mongolian goat herders, who are among the poorest people in East Asia, could see their incomes raised by twenty percent. But without these measures, more open trade could just lead to destructive overgrazing."

Countries in East Asia can capture many of the gains through regional action. Kathie Krumm, Senior Adviser at the Bank and co-editor of the report, commented, "The research suggests that real gains can come from the new regionalism in Asia  if the new arrangements tackle the right issues. Policy action that reduces business costs, such as through competitive producer services like logistics and accounting, and that lowers the costs of cross-border business operations and trade  such as efficient customs, paper-less clearance, electronic processing, safety measures  can generate more dynamic regional trade and investment flows. But the key principle must be one of simplification: without a common approach, too many international agreements can add cumbersome administrative costs to firms."

Moving forward, Ms. Krumm concluded, will require East Asian countries to consider the seven point agenda that has been developed from the research as guidance for countries.

(China.org.cn June 10, 2003)

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