Can Asia Go The Next Round on Economic Integration?

Posted on 09/16/13
By Peter Drysdale | Via East Asia Forum
Piles of containers are pictured at a terminal of Yangshan Deep-water Port in Shanghai, China, 10 September 2013. (Photo via East Asia Forum)
Piles of containers are pictured at a terminal of Yangshan Deep-water Port in Shanghai, China, 10 September 2013. (Photo via East Asia Forum)


Despite the slowing growth in some economies, Asia is still the most dynamic part of the world economy. Output, trade and incomes per head are still growing faster on average than in most other parts of the world economy. But there are threats to Asia’s economic growth on the horizon, not only because of the lingering malaise of industrial-country economies but because Asia’s economic performance has become patchy when not long ago it was pretty well universally strong.

China’s growth, as expected, has come back a few percentage points from its stellar double-digit highs over the past three decades. Japan has been in the doldrums, though there is now prospect for change with its new growth strategy. India has fallen sharply from its high-growth trajectory. After a solid growth spurt, uncertainties are growing about whether Indonesia can stay in the race to the top.

At the centre of the Asian economic success story is integration into the international economy. All the major Asian economies are fundamentally natural resource deficient so trade has been the key to their industrial and economic transformation. The scale of their economic growth and their geographic proximity have dictated that inevitably more and more of the trade of Asian economies has been with each other. Commitment to opening up to trade under the GATT and WTO and the establishment of policy regimes that welcomed foreign investment in turn provided a policy environment in which Asian economic integration — promoted not by discriminatory trading arrangements but by the multilateral rules and norms — led the way in pioneering international production networks and supply chains as a dynamic element in efficient international trade and economic growth.

Right across Asia governments are facing the need to re-boot their economies, from positions of varying degrees of strength. China is challenged with rebalancing and deeper reform including capital liberalization of financial markets and international payments to maintain its new growth trajectory. Structural reform and a new round on international opening is essential to the success of Japan’s new growth strategy. India has to embrace its internationally-oriented reform strategy anew if it is to avoid slipping back into economic stagnation and poverty. Indonesia needs to retreat from renewed protectionism to maintain and lift its growth momentum.

These challenges are daunting. But they also represent a shared opportunity to tackle significant national problems with common commitment to an international economic policy agenda that embraces the neighborhood and the world beyond. Like the 1980s and early 1990s, when East Asia fashioned a collective vision and economic diplomacy that connected domestic market reform ambitions and impressive efforts to open their economies to new international trade and investment strategies, the current decade presents the chance for all of Asia (including India and South Asia) to embrace both the next round of national reforms and their international dimensions.

The international policy environment is certainly less supportive of such an initiative than it might have appeared to East Asian reformers 20 or 30 years ago. Negotiating a way forward through the WTO is not an option in the same way as it was through the Uruguay Round of trade negotiations. In any case the agenda is no longer a narrowly trade agenda. It is a broader structural reform and development agenda. There has been a proliferation of so called ‘free’ trade agreements that were supposed to open up avenues for internationally focused reforms. They have in fact delivered little such reform and efforts are now focused on trying to sort out the mess they have created in the form of complicated rules, trade and investment discrimination and the segmentation of international markets. The US-driven Trans-Pacific Partnership (TPP) and the ASEAN-driven Regional Comprehensive Economic Partnership (RCEP) negotiations are ostensibly aimed at streamlining and extending these agreements to involve more countries on the same terms across Asia. Can either of these serve as platforms for a new round of Asian reform and economic integration?

The short answer to that question is no: not the way either is shaping up right now. TPP doesn’t even include China or India and isn’t likely to any time in the foreseeable future. RCEP, as it has so far been prosecuted (although it includes both China and India), is mimicking TPP in the narrowness of its negotiating focus.

But that could change. As Shiro Armstrong argues in this week’s lead essay, ‘The two agreements are quite different in their approach and process, and potentially quite different in outcome. The TPP, which has completed 19 rounds of negotiations, is a single undertaking that is allowing carve outs and bilateral deals in some areas to achieve a high-standard agreement. RCEP starts with more flexibility in its guiding principles, allowing special and differential treatment for developing countries while still aiming for a high-standard agreement. Still in its early stages, RCEP’s second-round negotiations will be held over 23–27 September in Brisbane’.

RCEP’s strength lies in its flexibility, in allowing common objectives to be pursued over different paths and the interests of the less-developed members to be met. That strength would be a weakness if it didn’t lead to a common negotiated endpoint. That is why there is such interest in the report of the group of experts to re-invent RCEP’s negotiating strategy so that it has a chance of meeting both objectives and serving to provide a vision and a pathway forward on Asian reform.

It’s early days but Armstrong is right: where we end in the region on TPP and RCEP will be game-changing, for better or for worse. For Asia that must mean making RCEP work to serve the national reform agendas that are essential to deliver the next round of Asian economic integration.

Peter Drysdale is Editor of the East Asia Forum. Click here to go to the original article

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