When Chinese and ASEAN (Association of Southeast Asian Nations)
leaders agreed to establish a free trade area within ten years, it
sets off a chain reaction around the world. The impact has been
especially marked in Asia where it is adding impetus to the process
of regional economic integration.
The third China-ASEAN meeting of Senior Economic Officials was held
in Beijing on May 14. On their agenda was the Framework Agreement.
This covered the guidelines, principles, timetable, scope and model
for a free trade area. It also marked the founding of the
China-ASEAN Trade Negotiation Committee.
Following approval of the Framework Agreement by both parties,
formal talks aimed at establishing a free trade area would
commence.
If
real progress is to be made a number of issues need to be
resolved.
Exclusivity
The regional nature of the agreement requires it to be exclusive.
There are two essential criteria.
The first is geographical. Member states must be from the same
area. For instance countries other than the ten Southeast Asian
states would not be eligible to join ASEAN. As a result, a request
for ASEAN membership by India has been rejected.
Second is the requirement to restrict preferential treatment to the
member states. The favorable treatment should only be mutually
available to the member states drawn from the region. It cannot be
extended to countries from other parts of the world.
The aim of a free trade area is to reduce mutual trade barriers
among member states and to remove other non-tariff barriers step by
step. Protectionist policies against non-member countries are still
retained.
Customs union is an advanced form of free trade area. Here free
trade applies among member states. They mutually rescind import
duties while a consolidated external tariff is adopted to maintain
a common external trade barrier.
In
essence any free trade area is established by agreeing and
implementing a set of logical measures to ensure economic
exclusivity.
Taking the Lead
There remains an unresolved controversy on the issue of whether or
not a preeminent country or leading group is necessary for
successful regional economic integration.
The spectacular progress in regional economic integration in North
America has been attributed to the powerful leadership of the
United States. It spares no effort in promoting regional
integration in the North American Free Trade Area.
Meanwhile, the European Union with France and Germany in the
driving seat has been energetically expanding regional integration
out from the economic arena and into political, military and social
fields.
However no single nation or leading group has so far emerged in the
leading role for regional economic integration in Asia. In the
absence of a strong leader, little progress has been made to date
in Asia's regional economic integration.
Who then should shoulder the responsibility for leadership in the
quest for regional economic integration in East Asia? There are
four serious contenders: ASEAN, Japan, China or a joint
Sino-Japanese leadership.
To
date Japan has been trying to lead East Asian economic cooperation
single-handedly. No doubt Japan fears that China will become the
main economic power in Asia. China on the other hand would rather
back up ASEAN to take the leading role in regional integration than
see Japan dominate economic cooperation in Asia on its own.
Relations between China and Japan can be expected to fall short of
full mutual trust unless and until Japan's official attitude to
history is modified and becomes acceptable in China. So joint
leadership by China and Japan could not be considered feasible at
present.
The United States has its own strategic and economic interests in
East Asia and has a voice that cannot be ignored.
A
strategy of developing a 10+3 option (ASEAN + China, Japan and the
Republic of Korea) is fundamentally sound. A 10+1 model (ASEAN +
China) when coupled with strengthened trilateral cooperation among
China, Japan and ROK also has its merits.
China should continue to endorse 10+3 as the main channel for
future East Asian cooperation in the longer term. However the
reality of circumstances in East Asia means it would be no easy
matter to set up the 10+3 cooperative mechanism.
Consequently China should fully support the establishment of the
(10+1) ASEAN-China Free Trade Area. This would neither adversely
affect common understanding nor present a barrier to eventual
progress towards the 10+3 framework.
East Asian countries have been making progress in the field of
financial cooperation. Japan has concluded individual agreements on
currency exchange with the Republic of Korea (ROK), Thailand,
Malaysia and the Philippines. China has signed currency exchange
conventions with both Thailand and Japan.
In
the absence of such issues like the locus of the leading role, farm
produce export subsidy and overshadowing of the extant ASEAN Free
Trade Area, the establishment of the ASEAN-China Free Trade Area
will turn out to be a win-win result.
Institutionalized or Not?
Regional economic integration can progress through the free trade
area, customs union, common market, economic union and finally to
full-scale economic integration. All these are institutionalized
forms of economic cooperation. These stages represent progressive
moves to higher and higher levels of institutionalization.
Right at the start, the forum for Asian Pacific Economic
Cooperation (APEC) was defined as a consultative and
non-institutionalized economic forum. This has led to a
long-standing but unfounded view that non-institutional is better
than institutional. What does it really mean?
Institutionalization represents the more rigorous mode of
agreement. A consensus is reached at the conference table. This is
set out in the form of a treaty or agreement. This then has to be
ratified by the legislative bodies of each of the individual
nations before it takes effect.
Within a non-institutionalization model, national leaders agree to
implement an agreement, which has been achieved through
consultation. Compliance is then not a matter of legislation but
merely one for individual reputations.
In
East Asia, the two models 10+3 and 10+1 are intended as
institutionalized regional economic cooperation mechanisms. Their
success would hinge on inter-governmental negotiations covering a
wide range of issues.
The American-Canadian Free Trade Agreement and the Free Trade
Conventions of the United States, Canada and Mexico are appropriate
exemplars of the institutionalized approach. In each case the talks
covered broad ground including guidelines, principles, system,
framework, operational mechanism and the model for establishing the
free trade area. The Free Trade Conventions set out the principles
of trade liberalization dispute resolution through consultation,
preferential regional economic development and so on. Their scope
embraces trade in commodities, provision of services, farm produce,
intellectual property, environmental protection, investment,
policies on competition, government procurement, import and export
procedures, an index of volume of trade and mechanisms for dispute
resolution etc.
Though they differ in approach, both the China-ASEAN free trade
negotiations and those entered into by the US, Canada and Mexico
share the same goals. The North American Free Trade Conventions are
based upon the American-Canadian Free Trade Agreement. The
China-ASEAN Free Trade Agreement takes its model from the ASEAN
Free Trade Treaty. China should therefore make a careful study of
both the North American Free Trade Conventions and the ASEAN Free
Trade Treaty.
The US-Canada free trade negotiations lasted 16 months while the
subsequent talks involving the US, Canada and Mexico took only 14
months. In the light of these precedents China should work to reach
a consensus with ASEAN as soon as possible.
Majority v Minority
Regional economic cooperation can extend beyond freedom of economic
movement within the zone to include collective cooperation with
other external economies.
History reveals that disputes are sure to arise no matter what kind
of joint endeavor is looked at. They have occurred in the context
of South-South, North-South and North-North cooperation. Disputes
tend to arise between majority and minority interests and can be a
real pain as they are difficult to resolve.
Aims identified for the ASEAN-China free trade zone go well beyond
just reducing tariffs and removing tariff barriers. Cooperation is
to extend to agriculture, information and communications, human
resources development and transportation. Then there is the
proposed development of the Mekong River.
When measures necessary for progress are discussed, there will
always be different viewpoints. These are driven by differences in
underlying economic interests. When a consensus seems out of reach
there are two courses of action. Go along with the majority view or
just quietly give up.
The main contribution to economic regionalization made by the
European Union (EU) has been its single currency system. Two points
are worth mentioning. Member states were not forced to join and
some chose not to. Conditions had to be met by those who did wish
to join. East Asian countries would do well to learn from the EU
experience when dealing with disputes.
National Interests v Regional Interests
Member states engaging in regional economic cooperation each have
their own different economic drivers and expectations. If all the
participants were to put their narrow national interests above the
broader regional interests, then everyone loses.
If
regional cooperation is to succeed, it will be necessary to
converge national and regional interests. The North American Free
Trade Zone provides some examples for East Asia.
The US dominates the North American Free Trade Zone. It has been
careful to respect the interests and position of its two partners,
especially Mexico. The North American Free Trade Zone Treaty
provided for a transition period and preferential treatment for
Mexico.
During the first round of tariff reductions, Mexico was only
required to eliminate tariffs for 35 percent of US products. In
contrast both United States and Canada removed their tariffs for 80
percent of Mexican products. The treaty also included a 10- to
15-year buffer period for Mexico's uncompetitive industries
allowing them this time to restructure.
The negotiations between China and ASEAN have also sought to
balance the various interests involved. Before the start of formal
talks, Chinese leaders announced most favored nation treatment for
Vietnam, Laos and Myanmar. This will strengthen imports into China
from these three nations.
This significant measure shows that China is a responsible country.
Its commitment to establishing a China-ASEAN Free Trade Zone is not
only for the sake of its own interests but also for those of ASEAN
as a whole. It has shown willing to promote the economic
development of less well developed areas in the pursuit of common
prosperity and development.
Economic v Non-economic Factors
In
today's world, international economic relations are influenced not
only by economic factors but also by non-economic factors like
politics, society, culture, thoughts and ideology.
New trends are emerging in international political and economic
relations. Political influences on economies and economic
influences on politics are gaining ground. Then there is the growth
of domestic influences on international issues and of international
influences on domestic issues. These serve in turn to demonstrate
an increasing influence of non-economic factors on economic
development and international economic relations.
Non-economic factors influence both the 10+3 option (ASEAN + China,
Japan and ROK) and the 10+1 model (ASEAN + China, coupled with
strengthened trilateral cooperation among China, Japan and
ROK).
Key non-economic factors having a bearing on future talks could be
Japan reviewing its past, US-Japan Security Treaty, the actions of
a few countries impinging on the interests of the others, extreme
actions linked to Islamic fundamentalism, territorial disputes,
turmoil in society and unwelcome imposition of Western values. Any
or all of these could have a negative impact on the Asian economy
and this would be felt particularly in East Asia.
So
East Asia should anticipate real challenges along the road to
regional economic integration. They will need to be addressed both
at a broad regional level and also at the level of individual
issues.
An
ASEAN and China Free Trade Zone can be thought of as a kind of
South to South regional integration. What the states have in common
is more important that what divides them.
All parties agree the need to expedite regional economic
cooperation while strengthening political dialogue and cooperation.
The main challenges to ASEAN and China Free Trade will come from
outside the zone. The internal issues will be more easily
resolved.
Gu Yuanyang is a researcher with the Institute of World
Economics and Politics under the Chinese Academy of Social
Sciences
(china.org.cn, translated by Shao Da and Zheng Guihong, September
9, 2002)