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May 17, 2004

East Asian Community and Japan's Strategy

Ippei YAMAZAWA (President, International University of Japan)

Regionalism in East Asia

In this article we examine the current state of East Asian regional integration and future prospects for what might be called the "East Asian Economic Community." There have been heated discussions on regional integration including FTAs (Free Trade Agreements) in Asia, especially since the so-called re-unification of Europe with ten new members joining in the EU on May 1, 2004. Now the question is being asked whether an economic union like the EU can be achieved in Asia. Just a few years ago the answer would have been no, but now it can be said that moves towards formation of an economic community have already begun in East Asia. In fact, there are so many arguments mushrooming about these moves, and the mass media often reports that China is taking initiative while Japan is lagging behind in pursuing FTAs and further integration in East Asia.

Why is regionalism being pursued in the age of globalization? Because regionalism is a result of governments' responses to the globalization of business activities for the purpose of improving the policy environment for economic growth. Governments are trying to attract both domestic and foreign firms to their own territories by integrating themselves into their neighboring region. These moves have been continuing along with WTO negotiations and promoted by "competitive liberalization," seeking gains from the dynamic effects of an integrated market.

In East Asia momentum emerged for regional integration in the recovery process of the financial crisis in the late 1990s. Intra-regional trade and investment increased mainly due to market-driven economic integration, first among Japan, Korea and ASEAN nations, and later joined by China. Various proposals have been made for bilateral FTAs, ASEAN+1, ASEAN+3, etc., in order to avoid another economic crisis in the region.

Japan's Move Towards FTAs

As for Japan's move towards FTAs, the Japan-Singapore EPA (Economic Partnership Agreement) took effect in 2002, and the Japan-Mexico FTA concluded in March, 2004. The Japan-Korea FTA was first proposed in 1998 and official negotiations with the Korean government have been continuing since December 2003, while negotiations with Thailand and the Philippines started in February 2004.

However, the most significant development so far has been the conclusion of the framework agreement for the Japan-ASEAN Comprehensive Economic Partnership (CEP) in October 2003, where Japan is shifting from conventional bilateral relations with ASEAN nations to the ASEAN-wide integrated market and division of labor. While Japan's major firms have already built their business networks in each of the ASEAN countries, the CEP with an integrated ASEAN will create new business opportunities and attract more foreign investment in the region.

In this regard, China seems a little ahead of Japan, because China signed the China-ASEAN framework agreement for economic cooperation in November 2002, aiming to achieve an FTA in 2010-2015. It is notable that China unilaterally declared the liberalization of eight agricultural products including fresh vegetables, fruits and ornamental plants. These are most difficult areas for Japan to liberalize due to political pressure within the country.

Towards an East Asian Economic System

Although pursuing FTAs is a desirable step forward, it would certainly be better to have an economic community covering the whole East Asian region by emphasizing ASEAN+3, for example. However, its early realization is impeded by non-economic factors on the "3" side, such as differences in social systems, lack of experience in integration, and wartime memories and mutual distrust. Therefore, it is more realistic to promote various regional trade agreements simultaneously by taking advantage of momentum regarding FTAs in East Asia, while sharing the importance of the East Asian Economic Community as an ultimate goal.

In such a community, a common economic system would be shared, while each player, whether a government or a firm, should pursue efficiency, profitability, transparency, accountability, etc. under the pressure of globalization. Does this mean that we are heading for the so-called Anglo-American standard? There seems to be a little uneasiness in adopting such a standard in East Asia countries with unique social, cultural and human relationships and concern about the dominance of economic meritocracy and continued economic inequality under the Anglo-American standard.

Since such a movement towards regional integration is a gradual process, especially in East Asia, the difference between the East Asian and Anglo-American standards will remain for a long time to come. We should pursue a unique economic system with enough flexibility to embrace all economies in Asia, but at the same time with efficiency and competitiveness to survive in global competition.

(This paper is based on Professor Yamazawa's presentation at the IUJ-GLOCOM Platform Joint Seminar on May 10, 2004)

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