East Asia economic integration and ASEAN centrality
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One important economic agenda item at the ASEAN summit this weekend is the launch of the ASEAN Regional Comprehensive Economic Partnership (RCEP). This proposed economic alliance is a vehicle to engage interested ASEAN members and its six partners in creating a free trade area with comprehensive economic cooperation.
The alliance aims to significantly improve the existing ASEAN+1 trade agreements by integrating them into a comprehensive package. ASEAN RCEP will also signify ASEAN centrality in the region.
While countries in East Asia have been actively engaged with each other in international trade and production for several decades, formal economic integration is a relatively new initiative. ASEAN countries have managed to position themselves as a hub by forming bilateral free trade agreements (FTAs) and economic partnership agreements (EPAs) with each of six partners, i.e. Australia, China, India, Korea, Japan and New Zealand.
Prior to RCEP’s introduction, countries in the region had initiated region-wide agreements known as ACFTA, involving ASEAN+3 partners, and CEPEA, which included three other nations. Those two attempts failed mostly due to rivalry between China and Japan, which each favored one-to-another arrangements.
There are reasons to stress the importance of region-wide cooperation over the existing hub and speak of arrangements between ASEAN and each partner. First, the potential benefit from such an arrangement is large; some calculations estimate that the benefits may reach three times higher than the benefits from the formation of the ASEAN Economic Community (AEC).
Second, and more importantly, is that such an arrangement has a potential to reduce the complexity of the current situation. Currently there are five FTAs/EPAs between ASEAN and its partners, while some are also complemented by bilateral agreements between individual ASEAN members and their partners.
Dozens of trade deals in the region are intermingled in an unorganized fashion, raising what is known as the “Noodle Bowl Syndrome”. It has reduced the potential benefits from economic integration since business sectors have to pay attention to different rules of different FTAs, while at the same time it has also increased the cost of utilizing preferential concessions.
The noodle bowl situation is partly a result of a lack of vision toward East Asia economic integration. While it took more than a decade for European countries to discuss the continent’s trade arrangement, dozens of bilateral agreements among East Asian nations have mushroomed in the past few years; placing them in a race to form FTAs without having a vision for greater and deeper integration.
The future ASEAN RCEP could act as a catalyst for more harmonized regional integration initiatives, given that the economic partnership is being built on the best practices of existing ASEAN+1 FTAs and not only to serve the lowest common denominator.
The name ASEAN RCEP indicates the key role of ASEAN and its centrality in determining the direction of future regional integration. This makes is a significant difference from the former attempts of the EAFTA, which was favored by China, or the Japan-initiated CEPEA. ASEAN centrality provides a better chance for the nations to find common ground for high-level regional integration. A well-defined agenda for the implementation of the ASEAN AEC also enables countries in the region to learn from the experience of ASEAN integration.
In addition, the greater prospect of having an FTA between China, Japan and Korea (CJK FTA), although still subject to many conditions, can fulfill the existing gap of regional integration. Better understanding between the three Northeast Asian nations provides robust support for regional integration.
However, there are many challenges for ASEAN in playing its important role in RCEP. One is members’ commitment toward integration, both at the ASEAN level or with partners. Despite a comprehensive and clear road map of the AEC, recent progress on implementation is far from satisfactory.
The latest AEC Scorecard, which measures progress of implementation compared to scheduled measures in the AEC Blueprint, reveals that ASEAN members only managed to implement 70 percent of targeted actions during the 2007-2011 period. In order to be a constructive drive of East Asia integration, ASEAN members should first strengthen their commitments toward economic integration.
Another thing that may affect the completion of RCEP is the presence of the US-led Trans-Pacific Partnership (TPP). The current arrangement of the TPP, which excludes several ASEAN members and several partners, may distract the focus on East Asia integration.
It has potential to increase the complexity of economic arrangements in the region, therefore undermining the benefit of integration. There should be clearer positioning of the TPP and future RCEP so that the two arrangements complement each other.
The recent slowdown in AEC implementation indicates the declining enthusiasm of ASEAN members toward regional integration. ASEAN members should realize that integration among countries in the region is necessary to enhance their competitiveness in the current globalized system.
It is even more important for Indonesia in order to increase its position in the global production network. As the biggest economy in ASEAN, Indonesia should promote the successful implementation of the AEC Blueprint and should maintain ASEAN’s important position in the driving seat of regional integration.
The writer is the head of the economics department at the Centre for Strategic and International Studies (CSIS), Jakarta.