Economic Crises Economic Crises and East Asian Cooperation: and East Asian Cooperation:

ASEAN, ASEAN+3, and ASEAN, ASEAN+3, and ASEAN+6ASEAN+6

Dr. Kitti PrasirtsukDr. Kitti Prasirtsuk

9 May 20099 May 2009

22

Relevant JargonsRelevant Jargons

East AsiaEast Asia

ASEAN+3ASEAN+3

East Asia Summit (EAS): +Australia, New East Asia Summit (EAS): +Australia, New

Zealand, India (ASEAN+6)Zealand, India (ASEAN+6)

East Asia Community (EAC)East Asia Community (EAC)

EPA: Economic Partnership AgreementEPA: Economic Partnership Agreement

33

East Asian Community - EAC East Asian Community - EAC

ASEAN+3

ASEAN+6or

East Asian Summit

ASEAN

44

ArgumentArgumentEast Asian cooperation has been driven East Asian cooperation has been driven by economic crises.by economic crises.Yet, it is the rivalry b/w China and Japan Yet, it is the rivalry b/w China and Japan that determined the “timing” of the that determined the “timing” of the cooperation debate (esp. on creating an cooperation debate (esp. on creating an East Asian community) during the early East Asian community) during the early 2000s.2000s.It is the Japanese business interests that It is the Japanese business interests that forge the “contents” of East Asian forge the “contents” of East Asian cooperation, including FTA / EPA and cooperation, including FTA / EPA and financial cooperation.financial cooperation.

55

Why discussed now?Why discussed now?

- Global Financial Crisis- Global Financial Crisis

- ASEAN Summit, 27-28 Feb. 2009ASEAN Summit, 27-28 Feb. 2009

- ASEAN+3 Summit and East Asia Summit ASEAN+3 Summit and East Asia Summit (ASEAN+6), 10-12 Apr. 2009 scheduled (ASEAN+6), 10-12 Apr. 2009 scheduled but failed. but failed.

66

OverviewOverview

1. The Development of EA Regionalism1. The Development of EA Regionalism

2. Negative and Positive Factors2. Negative and Positive Factors

3. Understanding EA Regionalism3. Understanding EA Regionalism

4. The Future?4. The Future?

5. Conclusion5. Conclusion

DiscussionDiscussion

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First Attempt – Greater East Asia Co-prosperity byFirst Attempt – Greater East Asia Co-prosperity by Imperial Japan (World War II)Imperial Japan (World War II)

Second Attempt – East Asia Economic Grouping Second Attempt – East Asia Economic Grouping East Asia Economic Caucus (EAEC) by PM East Asia Economic Caucus (EAEC) by PM Mahathir (1990) Mahathir (1990)

Current Attempt – 1997Current Attempt – 1997 Asian Financial Crisis Asian Financial Crisis ASEAN+3 ASEAN+3 ASEAN+6? : “East Asian Community” ASEAN+6? : “East Asian Community”

East Asian Community – East Asian Community – 3 Attempts3 Attempts

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1. The Development of EA 1. The Development of EA RegionalismRegionalism

The end of the Cold War The end of the Cold War more focus on more focus on

tradetrade

Stagnant GATT Uruguay RoundStagnant GATT Uruguay Round

Rising trading blocs (EU, NAFTA)Rising trading blocs (EU, NAFTA)

1990 Mahathir’s proposal on East Asian 1990 Mahathir’s proposal on East Asian

Economic Grouping (EAEG), then toned Economic Grouping (EAEG), then toned

down to East Asian Economic Caucus down to East Asian Economic Caucus

(EAEC)(EAEC)

99

The Development (cont.)The Development (cont.)

- EAEC: Retaliatory flavorEAEC: Retaliatory flavor- U.S. opposed U.S. opposed - Japan’s Asia-Pacific Approach (w/ Japan’s Asia-Pacific Approach (w/

Australia)Australia)- Superseded by APEC, but ASEM Superseded by APEC, but ASEM

preparation provided chance for its preparation provided chance for its rebirthrebirth

- Japanese production networks and Japanese production networks and overseas Chinese business networksoverseas Chinese business networks

““de factode facto regionalization” regionalization”

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What has driven the grouping of What has driven the grouping of ASEAN+3?ASEAN+3?

The Financial Crisis (1997) The Financial Crisis (1997)

- limitations of ASEAN on their own- limitations of ASEAN on their own

- limitations of APEC (split on liberalization- limitations of APEC (split on liberalization

—Early Voluntary Sector Liberalization —Early Voluntary Sector Liberalization

(EVSL)(EVSL)

- increasing interdependence b/w - increasing interdependence b/w

Northeast and Southeast AsiaNortheast and Southeast Asia

- U.S. opposed AMF - U.S. opposed AMF Miyazawa Initiative Miyazawa Initiative

1111

What has driven the grouping What has driven the grouping of ASEAN+3? (cont.)of ASEAN+3? (cont.)

Increasing economic blocsIncreasing economic blocs

- EU expansion- EU expansion

- NAFTA - NAFTA FTAA FTAA

Common problems + common others Common problems + common others

“we feeling” “we feeling” regional identity ** regional identity **

but also as “security dilemma”but also as “security dilemma”

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What has been progressed so far?What has been progressed so far?

First ASEAN+3 (1997)First ASEAN+3 (1997)

The Chiang Mai Initiative, 2000 (The Chiang Mai Initiative, 2000 (bilateralbilateral

swap arrangement, starting w $36.5 billion)swap arrangement, starting w $36.5 billion)

EAVG ReportEAVG Report

Numerous functional cooperation, e.g. Numerous functional cooperation, e.g.

energy, transportation, environment, energy, transportation, environment,

technological cooperationtechnological cooperation

East Asia Summit (Dec. 05, Jan. 07, Nov. 07)East Asia Summit (Dec. 05, Jan. 07, Nov. 07)

1313

Progress (cont.)Progress (cont.)

2001 EAVG Report 2001 EAVG Report 2002 EASG 2002 EASG

Report Report

2001 China-ASEAN FTA2001 China-ASEAN FTA

2002 Japan-ASEAN CEP (EPA)2002 Japan-ASEAN CEP (EPA)

2004 enhancing ASEAN+3 and2004 enhancing ASEAN+3 and East East

Asia Summit Asia Summit

1414

What are the EAVG’s What are the EAVG’s suggestions?suggestions?

Economic cooperation—EAFTAEconomic cooperation—EAFTAFinancial cooperation—regional facility, Financial cooperation—regional facility, surveillance, exchange rate coordinationsurveillance, exchange rate coordinationPolitical and Security cooperation—broadening Political and Security cooperation—broadening to national governance issueto national governance issueEnvironmental cooperation—management of Environmental cooperation—management of water, joint exploration of energy sources, NGO water, joint exploration of energy sources, NGO involvementsinvolvementsSocial and cultural cooperation—promote Social and cultural cooperation—promote regional identity, HRDregional identity, HRDInstitutional cooperation—Annual East Asian Institutional cooperation—Annual East Asian SummitSummit

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Negative FactorsNegative Factors

Differences from EUDifferences from EUEU hasEU has 2“ 2“ C 1 D” C 1 D” ChristianityChristianity CapitalismCapitalism DemocracyDemocracy

Huge development gapHuge development gap A variety of political systemsA variety of political systemsNo common threat, but intra-regional No common threat, but intra-regional threatthreat

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Negative Factors (cont.)Negative Factors (cont.)

nationalist sentiment (also for nationalist sentiment (also for protectionism)protectionism)Preoccupation w/ domestic problemsPreoccupation w/ domestic problemsConflicting interests among membersConflicting interests among members

- Japan vs. ChinaJapan vs. China- Rich vs. poor countriesRich vs. poor countries- China vs. ASEANChina vs. ASEAN

FTAs FTAs

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Positive FactorsPositive Factors

Economic crisesEconomic crises

Increasing intra-regional tradeIncreasing intra-regional trade

Production NetworksProduction Networks and Triangular and Triangular Trade (JapanTrade (Japan--ASEANASEAN--ChinaChina))

Increasing regionalism elsewhere Increasing regionalism elsewhere (e.g.(e.g. EU ExpansionEU Expansion andand FTAA)FTAA)

WTO stagnation WTO stagnation

Asian Middle Class CultureAsian Middle Class Culture

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Intra-Regional TradeIntra-Regional Trade

58.95

33.134.35

62.45

47.65

54

0

10

20

30

40

50

60

70

East Asia NAFTA EU

1980

2003

1980 2003 1980 2003 1980 2003

%

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3. Understanding EA Regionalism 3. Understanding EA Regionalism (EAC)(EAC)

Timing of EACTiming of EAC: The rivalry b/w Japan and : The rivalry b/w Japan and

ChinaChina

Contents of EACContents of EAC: Japanese business : Japanese business

interestsinterests

2020

Timing of EACTiming of EAC

The competition b/w Japan and ChinaThe competition b/w Japan and China

* The Rise of China vs. Japan’s Lost * The Rise of China vs. Japan’s Lost DecadeDecade

* 2001 China-ASEAN FTA vs. 2002 JACEP* 2001 China-ASEAN FTA vs. 2002 JACEP

* 2003 NEAT vs. CEAC 2004* 2003 NEAT vs. CEAC 2004

* Also Energy and ARF* Also Energy and ARF

* Japan is playing a catch-up game with * Japan is playing a catch-up game with China, but Japan has always been good China, but Japan has always been good at catching up.at catching up.

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Timing of EAC (cont.)Timing of EAC (cont.)

* * Japan-China tensions during PM Japan-China tensions during PM Koizumi eraKoizumi era use use EAC to deal with EAC to deal with Japan - China relationsJapan - China relations

most discussions on EAC during most discussions on EAC during 22-0042005-0042005

* Since PM Abe’s reconciliatory posture * Since PM Abe’s reconciliatory posture toward China toward China less talk on EAC less talk on EAC

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Contents of EACContents of EAC

Business interests (mostly Japan)Business interests (mostly Japan)

* * Production Networks (throughProduction Networks (through FDI)FDI)

* Business Free Zone (Keidanren and * Business Free Zone (Keidanren and METI)METI) – – for liberalization in for liberalization in investment and servicesinvestment and services

* Japan has a broad business network * Japan has a broad business network in Australia in Australia 10+6 10+6

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5 Stages of Integration5 Stages of Integration

Bela Balassa, Bela Balassa, The Theory of The Theory of Economic IntegrationEconomic Integration

1)1) FTAFTA

2)2) Customs UnionCustoms Union

3)3) Common MarketCommon Market

4)4) Monetary UnionMonetary Union

5)5) Political UnionPolitical Union

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3 Pillars 3 Pillars of East Asian Community (EAC)of East Asian Community (EAC)

FTA/EPA (Economic Partnership FTA/EPA (Economic Partnership Agreement) Agreement)

Monetary cooperationMonetary cooperation

Functional cooperationFunctional cooperation

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1) FTA / EPA1) FTA / EPA

ASEAN+1ASEAN+1 and Japan+1and Japan+1 China-ASEANChina-ASEAN Korea-ASEAN *except ThailandKorea-ASEAN *except Thailand Japan-ASEAN by 2007Japan-ASEAN by 2007

EAFTA (East Asia Free Trade Area: EAFTA (East Asia Free Trade Area: 10+3)?10+3)?

CEPEA (Comprehensive Economic CEPEA (Comprehensive Economic Partnership of East Asia: 10+6)?Partnership of East Asia: 10+6)?

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FTAs in East AsiaFTAs in East Asia

China-ASEANChina-ASEAN: :

- regional approach- regional approach

- FTA- FTA

- Lack FDI linkages - Lack FDI linkages w/ ASEANw/ ASEAN

- competitive - competitive economic structureeconomic structure

Japan-ASEANJapan-ASEAN::- bilateral approachbilateral approach- EPA: beyond tradeEPA: beyond trade- More pronounced More pronounced

business interestsbusiness interests- More More

complementaritiescomplementarities

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ASEAN’s RolesASEAN’s Roles

ASEAN should play a central role.ASEAN should play a central role.

1) Under FTA negotiations with all 1) Under FTA negotiations with all countries involved.countries involved.

2) ASEAN has no serious conflicts with 2) ASEAN has no serious conflicts with any country. any country.

But ASEAN has problems (e.g. But ASEAN has problems (e.g. bilateralism > multilateralism, slow to bilateralism > multilateralism, slow to integrate)integrate)

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Japan’s Proposals (2006)Japan’s Proposals (2006)

CEPEA (Comprehensive Economic CEPEA (Comprehensive Economic Partnership in East Asia); 10+6Partnership in East Asia); 10+6

ERIA (Economic Research Institute ERIA (Economic Research Institute for ASEAN and East Asia): similar to for ASEAN and East Asia): similar to OECDOECD

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2) Monetary Cooperation2) Monetary Cooperation

(1)(1) Policy Dialogue and Surveillance Policy Dialogue and Surveillance (2)(2) Liquidity Support Facility (CMI)Liquidity Support Facility (CMI)(3)(3) Asia BondsAsia Bonds(4)(4) Asia Currency Unit (ACU)Asia Currency Unit (ACU)

Unit of account or invoicing currencyUnit of account or invoicing currencyMeans of payment or vehicle Means of payment or vehicle currencycurrencyStore of value or investment Store of value or investment currencycurrency

beneficial to Japanese Production Networksbeneficial to Japanese Production Networks But China prefersBut China prefers USUS$$-based system -based system

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Newest Monetary Cooperation Newest Monetary Cooperation

Global Financial CrisisGlobal Financial Crisis

CMIM (Chiang Mai Initiative Multi-lateralization)CMIM (Chiang Mai Initiative Multi-lateralization)

= AMF?= AMF?

US$ 80 billion US$ 80 billion 120 billion 120 billion

80% contribution from +3, but debate on who 80% contribution from +3, but debate on who

should contribute more. should contribute more.

India and Australia also want to participate. India and Australia also want to participate.

To be discussed in EAS 4.To be discussed in EAS 4.

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3) Functional Cooperation3) Functional Cooperation

Significantly increased during 2000-Significantly increased during 2000-20042004

More than 20 issues More than 20 issues

E.g. trade, investment, transportation, E.g. trade, investment, transportation, labor, environment, culture, labor, environment, culture, communications, transnational crime, communications, transnational crime, technology, energy, terrorism technology, energy, terrorism

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East Asian CommunityEast Asian Community

ASEAN Community ModelASEAN Community Model

ASEAN Community

ASEAN Security

Community (ASC)

ASEAN Economic Community (AEC)

ASEAN Socio-

Cultural Community (ASCC)

3333

China and EACChina and EAC

So far, WTO emphasis So far, WTO emphasis

Thinks about EAC less than JapanThinks about EAC less than Japan

more sophisticated Japanese more sophisticated Japanese business interests business interests most EAC most EAC proposals come from Japan proposals come from Japan to to create systemic arrangements create systemic arrangements

China wants to create new China wants to create new institutions apart from those under institutions apart from those under Japan’s influences (e.g. ADB)Japan’s influences (e.g. ADB)

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FDI to ASEAN (1995-2005)FDI to ASEAN (1995-2005)US$ BillionUS$ Billion

21.25

12.1

0.67 1.50.00

5.00

10.00

15.00

20.00

25.00

1995-2000 2001-2005

Japan

China

Sources: www.aseansec.org

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4. The Future of EAS?4. The Future of EAS?

EAS 1 (Dec. 2005): China vs. Japan; EAS 1 (Dec. 2005): China vs. Japan; Membership issueMembership issue

EAS 2 (Feb. 2007) : Energy (EAS 2 (Feb. 2007) : Energy (Cebu Cebu Declaration on East Asian Energy Declaration on East Asian Energy Security) Security)

EAS 3 (Dec. 2007): Global WarmingEAS 3 (Dec. 2007): Global Warming

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EAS 4 (Apr. 2009)EAS 4 (Apr. 2009)

Thai political crisis Thai political crisis Venue changed Venue changed from Bangkok to Chiang Mai from Bangkok to Chiang Mai lack lack of confidence on Thai leadershipof confidence on Thai leadership

Global Financial Crisis Global Financial Crisis ASEAN ASEAN Global Dialogue (AGD)Global Dialogue (AGD)

- World Bank, IMF, ADB, UN, WTO, - World Bank, IMF, ADB, UN, WTO, UNCTADUNCTAD

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EAS EAS 2 2ndnd APEC? APEC?

Yes Yes -- loose cooperation without -- loose cooperation without real real substancesubstance

No No -- monetary cooperation-- monetary cooperation

-- functional cooperation-- functional cooperation

-- more catalytic roles -- more catalytic roles from ASEAN from ASEAN

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ConclusionConclusion

ASEAN+3 is a more advanced cooperation ASEAN+3 is a more advanced cooperation scheme than ASEAN+6. scheme than ASEAN+6.

EAS = event, butEAS = event, but EAC = continuous EAC = continuous processprocess

cooperation processcooperation process > end results > end results

3 Pillars = EPA, monetary cooperation3 Pillars = EPA, monetary cooperation , , and and functional cooperation functional cooperation

Economic > Cultural > Security CommunityEconomic > Cultural > Security Community

Not yet clearNot yet clear road maproad map

ASEAN integration is crucial.ASEAN integration is crucial.

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DiscussionDiscussionWhich one do you think more possible: ASEAN+3 or Which one do you think more possible: ASEAN+3 or +6?+6?

What can you say about EAC, considering What can you say about EAC, considering Australia’s proposal on an Australia’s proposal on an Asia Pacific Community Asia Pacific Community (APC)(APC), as well as , as well as G20 MeetingG20 Meeting??

How do you foresee the future of the East Asia How do you foresee the future of the East Asia Community? Community?

How are FTAs related to the East Asia Community? How are FTAs related to the East Asia Community? Are they building or stumbling bloc?Are they building or stumbling bloc?

What role can ASEAN play in East Asia What role can ASEAN play in East Asia regionalism? regionalism?