Growing Together: Economic Integration for an Inclusive and - escap

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CHAPTER ONE 9 The case for regional economic integration in Asia and the Pacific Giving a voice to the region in international forums Finally, regional cooperation and integration would enable Asia and the Pacific to exercise influence in global economic governance commensurately with its growing economic weight. The region would thus be in a stronger position to shape the emerging global economic order in tune with its development requirements. Conditions for fruitful integration Regional economic integration is more likely to be successful when the process can be grounded in a shared history and culture. Exchanges are facilitated when countries have complementarities in factor endowments that can be shared to mutual benefit. And integration based on trade would be more fruitful if it opens up large and growing markets. Shared history, culture and values Many areas of the Asia-Pacific region have distinct identities shaped by centuries of history and cultural exchanges. In Asia, much of this has been rooted in trade – starting with the famed Silk Routes of two thousand years ago. Trade in goods has been accompanied by a vibrant exchange of ideas. Another notable unifying factor has been shared religious beliefs. The impressive cultural sites of Bagan in Myanmar, Borobudur in Indonesia, and Angkor Wat in Cambodia are a testimony to the vast trading and cultural networks that Asia had in ancient times. This long history of interaction is also notable in that it has been accompanied by few major conflicts between countries. India and China have, for example, over the centuries been highly developed nations – economically, militarily, ideologically and culturally. They could have been competitors for dominance. Yet that has not happened. Indeed, the history of their relationship has been one of mutual respect and coexistence. Recent perceptions of Asia as a conflict-ridden region should not hide centuries of cooperation between India, China, Japan and what is now the ASEAN region. These historical roots provide a strong basis for establishing an Asia-Pacific community. 28 Synergies for mutually beneficial cooperation Fruitful integration requires synergies or complementarities based, for example, on diverse factor endowments or specializations. Some of these will be the result of differing levels of development. Asia and the Pacific includes high-income countries such as Japan, Australia, New Zealand, and the Republic of Korea, which are members of the Organisation for Economic Co-operation and Development (OECD), and at the other end of the scale a number of low-income and least developed economies. This diversity opens up opportunities for mutually beneficial exchanges of development experiences. There are also complementary factor endowments. Some economies in East Asia have abundant capital but rapidly ageing workforces. Others, particularly in South and South-East Asia, may have less capital but should for the next few decades benefit from a demographic dividend of a young and growing workforce. Regional economic integration should thus enable labour-intensive industries to gravitate to labour-abundant countries where they can help build productive capacity. Meanwhile, labour-scarce economies can specialize in the production of capital- and knowledgeintensive goods. Another area of complementarity is finance. China and Japan, for example, have accumulated sizeable foreign exchange reserves which they are investing in the United States and Europe, often at relatively low rates of return. Countries concerned about the future value of these assets could instead invest more productively closer to home – in infrastructure development projects that currently remain underfunded despite high long-term payoffs. There are also complementarities in energy production and consumption. On the one hand, economies such as Indonesia, the
Islamic Republic of Iran, Kazakhstan, Malaysia, the Russian Federation and Turkmenistan have abundant hydrocarbon energy resources. On the other hand, major economies such as China, India, Japan and the Republic of Korea are highly dependent on hydrocarbon imports. The Asia-Pacific region has also developed cross-country complementarities within industries. East Asian countries, for example, have specialized in manufacturing and hardware while South Asian economies have focused on services and software. Recent analyses have found significant complementarities at disaggregated industrial sectors both within and between subregions, with the latter being generally higher than the former. 29 Large markets and a growing middle class Another important factor for the success of regionalism is a large and growing market. With rapid economic growth, the Asia-Pacific region is emerging as the main source of final demand for the region’s exports. China and India now have sizeable middle classes which form the world’s largest markets for a growing range of products and services, such as mobile phones, motor cars and jet planes. As a result, between 2000 and 2010 the proportion of Asia-Pacific trade that was carried on an intraregional basis rose from 48 to 54 per cent. 30 The region’s large and rapidly growing markets make regional economic integration an increasingly viable development strategy. This would not only enable the poorer countries of the region to take care of their development challenges, such as poverty and hunger, but would also benefit the advanced economies of the West by absorbing more of their exports and thus help bring down their levels of debt. Asia and the Pacific could therefore become a growth pole for the advanced economies and other developing regions. 31 Lessons from global experience Since the early 1990s, the ”new regionalism” has been a dominant trend in the world economy, particularly in Europe with the formation of the Single European Market and in North America with the signing of the North American Free Trade Agreement (NAFTA). In comparison with earlier and shallower forms of cooperation, these regional trade agreements (RTAs) pursued free trade complemented by strong rules of origin and mobility of capital and, in the European Union (EU), mobility of labour. Subsequently, the EU deepened integration, expanded its membership and progressively evolved into an economic union, with some of its members forming a monetary union with a single currency. Other regions have pursued similar RTAs. In Latin America and the Caribbean, these include the Common Market of the South (MERCOSUR), the Caribbean Community (CARICOM) and the Andean Community of Nations, and in Sub-Saharan Africa, the Common Market for Eastern and Southern Africa (COMESA) and the Southern Africa Development Community (SADC). There are now some 300 plurilateral and bilateral FTAs 32 across the world and an important part of global trade is now conducted on a preferential basis. 33 This also encourages other countries to negotiate their own RTAs to prevent discrimination by trading partners that belong to existing RTAs. During the last 20 years, there has been a debate on the impact of RTAs on further trade liberalization. Are they stumbling blocks or building blocks? Recent research tends to support the view that regionalism, by liberalizing trade, should be viewed as a building block of multilateralism. 34 RTAs also create larger markets, which are attractive to foreign investors. For example, since the formation of the single market the EU has increased its share in global FDI inflows from nearly 30 per cent in the 1980s to about 50 per cent today. 35 Similarly, Mexico has benefited from its NAFTA membership. Comparing the periods 1991-1993 and 2000- 2002, annual FDI inflows increased from $12 billion to $54 billion, as many industries relocated to maquiladora processing zones in the north of Mexico. 36 The strong association between membership in RTAs and FDI 10
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CHAPTER SIX 135 Towards an inclusiv
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CHAPTER SIX 137 Towards an inclusiv
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References 147 __________ (2009). E
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References 149 Brenner, Cath (2009)
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References 151 __________ (2010b).
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References 153 Hertel, T., ed. (199
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References 157 Quah, Danny (2010).
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