ABSTRACT
East Asian economies have made use of regional cooperation to advance their domestic economic reforms. But by the same token, at least in its initial stage, regional economic cooperation in East Asia has also been driven by economic reforms that have been independently undertaken by regional economies. The ‘first-generation’ economic reforms in East Asia were characterized by
measures to gradually open up the economies. Initially this was through efforts to promote exports via measures other than the liberalization of trade. In Korea, for example, the policy of so-called ‘double distortions’ was the way to expand exports while continuing to seal off the economy (where the double distortions were the granting of export subsidies while maintaining high import tariff barriers). In such countries as Malaysia and the Philippines, export processing zones were formed to promote exports from certain production locations that were managed under special policies. China successfully invented special economic zones that encompass large areas, even entire provinces in the coastal regions. Trade liberalization was only a matter of time. In the case of the (original)
ASEAN countries, their involvement in the Uruguay Round of multilateral trade negotiations brought home the message that to secure greater market access for their exports, they too needed to allow others greater access into their markets. ASEAN countries accepted the notion of ‘graduation’ to becoming newly industrializing economies (NIEs). It was this promise of moving up the ladder of development, and of becoming members of an East Asian so-called ‘flying geese’ formation, that led them to adopt progressively more open economic policies. The ASEAN economies became more integrated with their neighbours in the North. Subsequently, the ASEAN economies in particular embarked on investment
liberalization to attract capital and technology to expand and upgrade their production capacity. ASEAN began to entertain the idea of forming a regional production platform for global markets. This policy coincided with the strong drive on the part of Japanese companies to migrate to the South in response to the sharp yen appreciation following the Plaza Agreement (an agreement
by the G-5 countries in September 1985 on the need to reduce the overvaluation of the US dollar). The strong investment pull and push factors resulted in a new, dynamic regional division of labour that became progressively more horizontal in nature. This led to the emergence of regional production networks. The dynamic developments in the region provided the argument for com-
mitting the countries to adopting and sustaining open economic policies, as manifested in their efforts to continue with a programme of trade and investment reforms. The ASEAN countries have achieved a great deal but they continue to struggle with the problem of ‘sensitive sectors’. Regional cooperation has helped to strengthen the commitment to open
economic policies. The ASEAN Free Trade Area (AFTA) is seen by members as a means to lock in domestic economic reforms. Vietnam has been able to promote domestic economic reforms, in part by using its commitments in ASEAN as a pretext. In view of its spectacular development performance, it is not surprising that Vietnam has become the main champion of ASEAN. Regional economic integration, or ‘economic regionalization’, in East Asia
has been largely market-driven. Governments have entered the picture by promoting ‘economic regionalism’ with the adoption of agendas that focus on trade and investment liberalization and facilitation. With the formation of AFTA in 1993, the action plan has been the introduction of the Common Effective Preferential Tariffs (CEPT) by ASEAN member economies and the gradual reduction of these tariffs to 0-5 per cent by a certain date. An exclusion list and a sensitive list were introduced to deal with the ‘sensitive sectors’. An assessment of the impact of AFTA suggests that intra-ASEAN trade only increased slightly, and that only about 5 per cent of it has used the CEPT. What is often overlooked is the fact that together with the reduction of CEPT rates, ASEAN members have also lowered their MFN tariffs, making the whole of ASEAN a more open economic region for the world. In 1994, APEC produced one of the most significant initiatives thus far,
namely the Bogor Goals of free and open trade and investment in the region by 2010 (for developed countries) or 2020 (for developing countries). APEC is not a free trade area (FTA). Trade and investment liberalization has been pursued through a modality known as ‘concerted unilateral liberalization’, which is voluntary in nature and expressed through annual Individual Action Plans (IAPs). Progressive liberalization is to be achieved through peer pressure. APEC trade liberalization has been underestimated because members’ commitments to reduce tariffs are seen to have come largely from initiatives outside of APEC, and because the attainment of the Bogor Goals is being questioned. But APEC is about creating an environment that encourages members to maintain a strong commitment to open economic policies. In fact, average tariffs of APEC members have declined significantly, from 16.6 per cent in 1988 to 6.4 per cent in 2004. Trade and investment liberalization efforts are accompanied by trade and investment facilitation measures, as well as economic and technical cooperation. These form the three main pillars of APEC cooperation. A fourth pillar, human security, has been added since 2003.
