East Asian Regionalism since the Asian Financial Crisis (1997-1998)

Intro.

Prime Minister Hatoyama said he envisioned establishing an East Asian community through cooperative efforts in various fields, including economic partnerships, environmental measures and assistance efforts during natural disasters. (Asahi Shimbun 2009/11/6).

East Asian community is not a new idea.

How did it come to a birth, how has it developed?

I. Regionalism and East Asia

What is Regionalism?

Regionalism: cooperation or agreements to collaborate by governments of neighboring countries in a region, in the areas of trade, investments, financial affairs, cultural exchange, environmental issues, political and security issues, etc, in order to increase wellbeing and benefits.

Global Trend of Regionalism

Regionalism has been a global trend, as EU(European Union) was established as a political and economic union of 15 member countries upon the foundation of pre-existing EEC (European Economic Community). NAFTA (1994), MERCOSUR (1991) followed suit, creating regional free trade area.

*Mercosur (Southern Common Market): founding members are Brazil, Argentina, Paraguay, Uruguay.

*EU welcomed 10 new members on May 2004.

East Asian Regionalism

East Asia lagged behind the global trend of regionalism for various reasons. While there are EU in Europe, NAFTA in North America, Mercosur in South America, and FTAA (free trade area of 34 countries inAmericas) is under discussion, there is no regional free trade agreement (RTA) in East Asia.

The call for EAEG (East Asia Economic Group) by Mahathir of Malaysian Prime Minister in 1990 was not successful.

The Asian financial crisis gave a momentum for a new East Asian regionalism. Crisis-hit East Asian countries came to realize the need for establishing a regional self-help system to prevent another crisis..

East Asian Regionalism by ASEAN+3 (Korea, China, Japan)

•From 1997 the leaders of ASEAN (10 countries) and Korea, China, Japan began to get together to discuss issues regarding regional cooperation.

•ASEAN had existed for four decades as a security and economic (later) cooperative entity; Korea, China, Japan (CJK hereafter) joined ASEAN summit in 1997, amid deep concern over the Asian financial crisis.

•APT adopted East Asia Vision Group (EAVG) report (2001) and set an aim for establishing a singular East Asian community.

APT as a driving vehicle of East Asian community

•For the purpose of promoting the idea of East Asian community, EAVG report includes recommendations of cooperation in the following areas: trade, finance, political and security area, environment, social and cultural area, creating East Asia Summit and East Asia Forum.

(East Asia Vision Group was created by the call for President Kim Dae-jung of Korea and the first meeting was held in Seoul 1999.)

East Asian regionalism has come to a fruit in the financial sector as a result of ASEAN+3 get-together.

For the purpose of preventing another crisis, East Asian regional financial cooperative system was launched in may 2000 -> Chiang Mai Initiative (by ASEAN+3, APT hereafter)

CMI: a network of bilateral swap arrangements by ASEAN+3 countries

II. Financial Regionalism: Chiang Mai Initiative

Objective:

-to create a network of bilateral swap arrangements (BSAs) among ASEAN+3 countries

-to cope with short-term liquidity difficulties in the region

-to supplement the existing international financial arrangements ( e.g. the shortage of funds of the IMF).

Background: After the Asian financial crisis, East Asian countries shared the need to promote regional financial cooperation. At the ASEAN+3 Summit in November 1999, ASEAN+3 leaders agreed to enhance “self-help and support mechanisms in East Asia” through the ASEAN+3 framework. At the ASEAN+3 Finance Ministers’ Meeting in May 2000, finance ministers agreed to promote the Chiang Mai Initiative to establish a regional financial arrangement to supplement the existing international facilities.

Bilateral Swap Arrangements (as of May 2007; billion US$)

Korea / Japan / China
Korea / 3 bil. (mutual)
10 bil. (Japan)
5 bil. (Korea) / 4 bil. (mutual)
Japan / 3 bil. (mutual)
10 bil. (Japan)
5 bil. (Korea) / 3 bil. (mutual)
China / 4 bil. (mutual) / 3 bil. (mutual)
Thailand / 1 bil. (mutual) / 6 bil. (Japan)
3 bil. (Thailand) / 2 bil. (China)
Malaysia / 1.5 bil. (mutual) / 1 bil. (Japan) / 1.5 bil. (China)
Philippines / 1.5 bil. (mutual) / 6 bil. (Japan)
0.5 bil. (Phil.) / 2 bil. (China)
Indonesia / 2 bil. (mutual) / 6 bil. (Japan) / 4 bil. (China)
Singapore / 3 bil. (Japan)
1 bil. (Sing.)

Progress: Early this year (February 2009) under the circumstances of global economic crisis, ASEAN+3 agreed to develop CMI further by transforming bilateral arrangements to multilateral arrangements and increasing the collective funds to $120 billion, possibly aimed at Asian Monetary Fund in the future.

the vision of AMF

III. Cooperation in Free Trade Agreements

Bilateral Free Trade Agreements among ASEAN+3 countries

•Korea and Singapore: March 2006 (effective)

•ASEAN and China: July 2005 (effective)

•ASEAN and Japan: July 2005 (negotiation started)

•ASEAN and Korea: 2007 (effective)

•Japan (EPA)

- Japan and Singapore: November 2002 (effective)

- Japan and Philippine: September 2006 (singed)

- Japan and Malaysia: July 2006 (effective)

-Japan and Thailand: February 2006 (draft reached)

•Korea and Japan: FTA under consideration (bilateral study completed, October 2003), currently pending.

•Korea and China: under consideration

•Korea, China and Japan: under consideration; essential for EAFTA

•countries of APT have signed FTAs with many other countries outside East Asian area.

East Asia Free Trade Area (EAFTA) does not exist, yet. The needs for EAFTA has increased under the current global economic recession and the decline of the US economic prowess.

Forming CJK FTA is not an easy goal, either. CJK FTA is essential for EAFTA. Considering current political relations among the three countries, it is difficult to predict the birth of CJK FTA in the near future.

A Scenario for an EAFTA

1. ASEAN has already established AFTA.

2. Bilateral FTAs by ASEAN + C, ASEAN + K, ASEAN+ J have been agreed, respectively.

3. Forming a CJK FTAis the next essential step for the progress toward an EAFTA.

IV. Background Factsof East Asian Regionalism

Positive side:

-Intra-regional Trade:

intra-regional trade is a key indicator of economic integration and an important factor to facilitate regionalism.

The rate of intra-regional trade in East Asia is still lower than EU, but has been increasing consistently.

The share of intra-regional trade among East Asian economieshas risen substantially since 1990.

-ASEAN+3 countries: 28.9% (1990) → 39.9% (2005)

-ASEAN+3 economies + Hong Kong and Taiwan:

40.6% (1990) → 52.0% (2005).

Negative side:

Diversity:

The diversities in culture, language, political system, etc. are impeding factors in nurturing the soils for social and institutional integration in East Asia.

language / main religion / government
Singapore / English, Malay, Mandarin / Buddhism, Islam, Christianity / Congressional Democracy
Thailand / Thai / Buddhism, Chiristianity / Constitutional Monarchy
Malaysia / English, Malay / Islam, Buddhism, Taoism, Hindi, / Constitutional Monarchy
Philippines / English, Spanish, Tagalog / Catholic / Democracy
Indonesia / Bahasa, Indonesia / Islam / Republic
Vietnam / Vietnam / Buddhism / socialist
China / Mandarin / Taoism, Buddhism / socialist
Japan / Japanese / Shinto / Constitutional Monarchy
Korea / Korean / Christianity, Buddhism, / Congressional Democracy
Brunai / Malay / Islam / Monarchy
Laos / Lao / Buddhism / Republic
Myanmar / Myanmar / Buddhism, Islam / Military regime
Cambodia / Khmer / Buddhism

stable liberal democracies: Korea, Japan, Singapore… who else?

Philippines, Malaysia, Indonesia (developing democracy)

Other negative factors:

The lack of regional identity? (Who is Asian? What is Asia?);

Huge gap in the degree of economic development;

Distrust among CJK due to the historical legacy;

V. Prospects of East Asian Regionalism

•East Asian regionalism is on the rise; economic integration of APT is deepening.

•The vision of an East Asian Community someday may be a plausible dream.

•Financial cooperation of ASEAN+3 is promising (a common currency is a distant future, but AMF looks more possible).

•Concerns (Problems)

- no prominent leadership (like US in NAFTA, French-German alliance in EU)

- rivalry between China and Japan

- disputes on the issue of membership of EAC

(India, Australia, New Zealand included? )

- clashes of nationalism among C, J, K

- hesitation of the US

* Implications for Korea-Japan Relations

•Their common efforts to realize an East Asian community can help them to overcome conflicts and troubles stemming from the historical legacy.

•Japan has played an active role in suggesting financial assistance to neighboring countries suffering economic hardships in the Asian financial crisis (ex. Miyazawa Plan).

•Japan can also play a leading role in strengthening CMI.

•Korea and Japan are both very much interested in enhancing CMI toward a more advanced regional monetary-financial institution. (like Asian Monetary Fund)

•Both countries have also taken into consideration the formation of bilateral K-J FTA, CJK FTA as well.

•Both countries have participated actively in the APT framework.

•Korea and Japan can play mutually cooperative roles in the APT framework in order to make the dream of East Asian community come true in the future.

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