The ASEAN-China Free Trade Agreement and East Asian Regional Grouping

By Cai, Kevin G. | Contemporary Southeast Asia, December 2003 | Go to article overview

The ASEAN-China Free Trade Agreement and East Asian Regional Grouping


Cai, Kevin G., Contemporary Southeast Asia


Introduction

In recent years there have been calls for institutionalized regional economic cooperation in East Asia, especially in the wake of the Asian financial crisis of 1997-98. Two prominent proposals for an East Asian regional grouping attracted regional and global attention. The first is the proposal for an East Asian regional free trade area (FTA) to be constructed on the basis of the ASEAN Plus Three (APT) framework. An alternative proposal calls for the Association of Southeast Asian Nations (ASEAN) to establish FTAs with China, Japan, and South Korea respectively within the framework of an ASEAN Plus One (APO) forum.

Due to existing constraints inside and outside the region, however, the formation of an East Asian grouping remained difficult. It was within this context that the announcement by ASEAN and China in November 2001 to start talks on an FTA came as a major shock to the region and beyond. When the same idea had surfaced publicly a year earlier, it had been widely regarded as unrealistic, as it was thought that ASEAN would refuse to go along.

This article attempts to explore how and why the ASEAN-China FTA has emerged as the most likely regionalist scheme across East Asia instead of other similar proposals. Furthermore, it also assesses the impact of the ASEAN-China FTA on the process of East Asian regional integration. To address these issues, the article is organized into four major sections. The first section provides a brief review of the growing enthusiasm for a regional grouping in East Asia in recent years. The second part looks at recent efforts to move toward a region-wide grouping and the major obstacles confronting such an endeavour. The third section analyses why the ASEAN-China FTA has emerged as the most favoured free trade scheme ahead of the ASEAN-Japan, ASEAN-South Korea, or East Asian FTAs. Finally, the article considers the possible implications of the ASEAN-China FTA for East Asia's movement toward a region-wide grouping and the political economy of East Asia and beyond.

Growing Enthusiasm for an East Asian Regional Grouping

The discourse on the forces behind increasing enthusiasm for an East Asian regional institution is well pursued in a number of scholarly works. (1) Generally speaking, the recent growing penchant for an institutionalized East Asian grouping is widely seen as the result of the combined effect of the deepening and expansion of the European Union (EU) and the North American Free Trade Agreement (NAFTA); the growing economic ties among East Asian economies; the impact of the Asian financial crisis of 1997-98; and the growing dissatisfaction of East Asian governments with the increasingly apparent limitations of the Asia-Pacific Economic Cooperation (APEC) forum and ASEAN in defending and promoting the interests of East Asia.

Growing economic regionalism in the world economy since the mid-1980s seems to have created a single most important external imperative for East Asia to pursue a regional grouping for itself. (2) Of the three global economic centres, East Asia is the only region that is not yet formally organized, while Western Europe has been entrenched in EU and North America has its NAFTA. What is even more worrisome for East Asia is the prospect of EU's expansion to include Eastern European countries and the enlargement of NAFTA to form a Free Trade Area of the Americas by 2005. Given the heavy dependence of East Asian economies on these two major markets and their outward-oriented development strategies, the intensifying regionalism in other areas has raised concern among East Asian economies over the diversion of trade and investment flows. (3) Moreover, EU and NAFTA have not only formed themselves into increasingly closed markets but have also come to the bargaining table in multilateral trade negotiations as blocs. This leaves individual East Asian states frequently in a much weaker bargaining position in multilateral trade negotiations. …

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