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Spinning the Wheels of Economic Integration
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Asian economic integration started later than predecessors in the European Union (EU) and North America, but its pace has increased in the wake of the Asian financial crisis. During these years, Asian countries have undergone accelerated economic growth, and economic cooperation has become widespread. This has been aided by the establishment of sub-regional economic cooperation organizations, as well as further exchange and cooperation among Asian countries-developments that are lubricants to the process of economic integration. Currently, Asian economic integration has the following features:


Thriving sub-regional cooperation


Within Asia, sub-regional organizations continue to appear. The earliest and most important in East Asia is the Association of Southeast Asian Nations (ASEAN), consisting of 10 countries (Thailand, Malaysia, the Philippines, Indonesia, Singapore, Brunei, Viet Nam, Laos, Myanmar and Cambodia) and representing a population of more than 500 million. Establishment of the ASEAN-China, ASEAN-Japan and ASEAN-South Korea free trade areas (FTAs) is in full swing. The three “10+1” FTAs are expected to be whole by 2015. Meanwhile, a “10+3” FTA, including ASEAN, China, Japan and South Korea, along with East Asian cooperation, is still being discussed. But ASEAN’s total GDP is less than one ninth of the aggregate of China, Japan and South Korea-the most economically powerful and most heavily populated parties. Without their participation, East Asian regional cooperation can’t be realized. ASEAN plus the three countries will be the most energetic mechanism in East Asia and could potentially become a main channel of regional cooperation. The “10+3” FTA will be established through the integration of the three “10+1” FTAs.


In South Asia, to strengthen economic, social, cultural, scientific and technological cooperation, the South Asian Association for Regional Cooperation (SAARC) was established. The SAARC includes Bhutan, Bangladesh, India, the Maldives, Sri Lanka, Nepal, Pakistan and Afghanistan. In January 2004, the SAARC countries agreed to create an FTA, which took effect on January 1, 2006. The SAARC, expecting to establish an updated FTA on January 1, 2014, has cooperated widely with East Asian countries. India has begun FTA building with ASEAN, China, Japan and South Korea. A free trade agreement between Pakistan and China has already taken effect.


The Gulf Cooperation Council (GCC) is an important regional cooperation organization in West Asia. Its members include the United Arab Emirates, Oman, Bahrain, Qatar, Kuwait and Saudi Arabia. Since the founding of the GCC, its conference has rotated between the capitals of the six countries annually. These nations’ ministers of foreign affairs, national defense, domestic affairs, petroleum and finance will hold regular meetings, discussing political, economic, military and diplomatic issues, coordinating opinions and taking joint actions. The GCC plans to build a common market and launch a uniform currency in 2010, and has already started talks with China, India, Japan and South Korea on setting up FTAs.


The Shanghai Cooperation Organization (SCO) in Central Asia was formally constructed by China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan in Shanghai on June 14, 2001. The SCO aims to strengthen mutual trust and good relations among its members, encouraging them to effectively cooperate in the fields of politics, economy and trade, science and technology, culture, education, energy, transportation and environmental protection. The body works jointly at protecting and safeguarding regional peace, security and stability, as well as moving to establish a democratic, fair, sound and new international political and economic order. Mongolia, India, Pakistan and Iran have become observers of the SCO.


Increasing the strength and cooperation of sub-regional organizations will promote the process of Asian economic integration.


Deepening economic and trade cooperation


Asian countries have created different economic growth models to facilitate their economic development and strengthen regional economic and trade cooperation. For the past six years, all Asian countries’ economies have been in the fast lane.


As Asian economic development has accelerated, inter-regional trade has rapidly expanded. In the 1980s, inter-Asian trade only accounted for 34.7 percent of the total trade volume, while the proportion rose to 57.3 percent in 2002. This is higher than within the North American Free Trade Area (NAFTA), which was 46 percent that year, and second to the EU’s 62.4 percent. China, Japan, South Korea, India and Viet Nam contributed greatly to the substantial increase of inter-regional trade (see table 2). Although China’s exports to Asian countries grew 37.7 percent from 2001 to 2005, it exported even more to other regions during this period, drawing down its percentage in 2005 compared with what it was in 2001. However, China’s imports from other Asian countries rose 6.5 percentage points to 66.9 percent in 2005. Japan’s figures indicate that it has gradually returned to focusing on Asia. South Korea, India and Viet Nam have all deepened their trade relations within Asia.


In the field of inter-regional investment, China, Japan, South Korea, India and Viet Nam are also major players. Among China’s paid-in foreign direct investment in 2001, 61.2 percent came from Asian countries, while in 2005 the ratio was 59.9 percent. Statistics also show that by the end of 2004, China’s outward direct investment had reached $44.78 billion-70 percent of that invested in Asia. Japan’s outward direct investment is also Asia-bound, with the proportion climbing from 19.5 percent in 2001 to 35.6 percent in 2005. In 2001, 19.7 percent of South Korea’s outward investment flew to Asian countries, with the ratio soaring to 60.1 percent in 2005. India absorbs investment mainly from the EU and the United States. But investment from Asia to India also increased from 2.9 percent in 2001 to 12.7 percent in 2005. Viet Nam mainly attracts Asian investment, grasping 36 percent in 2001 and a whopping 70.2 percent in 2005.


A diversifying Asia


An important feature of Asia is its diversity. Asia has a multitude of countries, races and a large population, and Asian countries have taken on different political, economic, cultural and religious forms and development models. These are reasons why Asian regional cooperation is different from other regions, and why it is much slower compared with the EU and NAFTA. But since the beginning of the 21st century, propelled by economic globalization and regional integration, and along with the development of Asian economies and inter-Asia trade, as well as the deepening of mutual understanding, many countries have become more tolerant toward regional cooperation. Asia has already been developing a multi-area, multi-level and multilateral cooperative mechanism in order to create a cooperative model that transcends social systems and ideologies.


Looking outside Asia


Asian cooperation doesn’t shut the door on new countries and regions, and more members are welcome to join in. Australia and New Zealand have already been participants. Russia, the United States, the EU and other countries and organizations have established relationships with Asian cooperation organizations-a development not only beneficial to the prosperity and stability in Asia, but also toward playing a positive role in global peace and development.


Asia insists on opening up to and learning experiences from other regions, especially from the EU. It also strengthens communication and exchange with other countries and regions, and enhances mutual understanding and support among all parties.


Admittedly, opening should have its limits. East Asian integration is only the first step of the process of Asian integration. East Asia comprises Southeast Asia and Northeast Asia, including ASEAN, China, Japan, South Korea, North Korea and Mongolia, making up one third of the world’s population. The aggregate GDP of East Asian countries accounted for 20 percent of the world’s total in 2004, and foreign trade 25 percent.


However, during this initial stage, East Asian regional cooperation should be limited to the “10+3” framework. Otherwise, unlimited expansion will bring another APEC, a situation unhelpful to the healthy development of regional integration.


International practice also shows that in the initial stage of regional cooperation, it is not advantageous to have too many members; otherwise, too many opinions are difficult to be coordinate. The current EU with 27 members had only six countries at first, while the ASEAN grew from the original five to 10.


Stressing sustainable development


Asian economies are in different developing phases, with many featuring developing industry. To these countries, equal attention should be paid to environmental protection as is paid to economic development. Asian countries should stick to the path of sustainable development.


While developing industrial production, Asian countries should attach importance to environmental issues, including global warming, air and soil pollution, water and food safety, and public sanitation. Meanwhile, energy cooperation should be strengthened. The Asian economy is developing rapidly along with the demand for energy. International energy organizations estimate that East Asia’s demand for energy in 2020 will be 3.2 times that in 1997, and East Asian dependence on imported oil will ascend to 80 percent by 2020, up from 60 percent in 1997. By then, East Asian countries will all be oil net importers. Therefore, Asian countries should increase their oil reserves, ensure the safety of seaways for oil transportation, strengthen technological cooperation, exploit new and alternative energy, and put more efforts on energy saving.


Asian countries should also emphasize technological innovation and lay solid foundations for hi-tech development. Technological research and development, production and sales should be organized to form a pan-Asian industrial or enterprise network consisting of Asia’s new industrial segments. Inter-regional technological transfer should be promoted; industrial standards and authentication should be acknowledged mutually; and industrial specifications, information communication standards and intellectual property rights protection policy should be unified.


It is essential for Asia to achieve healthy development of its regional cooperation and free flow of human resources. Developed countries and regions should open their labor markets. Asia should also build its capital market and financial center in an effort to gradually unify its capital and financial market systems, and realize investment liberalization within the region.


Along with the healthy development of Asian integration is a general trend to establish a uniform currency. But, before a standard currency comes into being, we should support the Asian Currency Unit proposed by the Asian Development Bank in June 2006, as a transition toward this future.


Taking one step at a time


With the development of inter-regional trade and the increased exchange of human resources, Asian people’s minds have also changed. This is the great momentum of regional cooperation. However, Asia’s diversity determines that regional cooperation should not proceed hastily, but instead must go forth gradually.


During this cooperation, interests of all involved parties should be taken into account. Discussions and exchanges among governments, non-governmental organizations and academic fields should be deepened.


The current mechanism should be brought into full play and all kinds of projects should be implemented so that the Asian people can witness the benefits as soon as possible. The gaps among Asian countries can be narrowed, laying a solid base for regional cooperation.


During the past several years, Asian economic integration has made remarkable achievements through the joint efforts of Asian countries. The Asian people are confident in the future of their common continent.


The author is a professor and director of the Department of Asian and African Studies under the Chinese Academy of International Trade and Economic Cooperation, a think tank of the Ministry of Commerce.  


(Beijing Review April 19, 2007)


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