Title: Taking the Initiative in the Regional Development: What Implications Do China and Japan Bring for the Economic Integration in East Asia?
Written by: Masaomi Kitagawa
Mechanisms & Policies in Economics published by ATINER, September 2007
Part 6: International Trade and Finance, pp. 295-310

Ι . Introduction

As the two major countries in the region, China and Japan are currently starting to strengthen and deepen their economies with ASEAN and build solid relations between among them, the final objective of which is to develop the regional integration and realize an economic community in East Asia. At the most basic levels, there are the three main factors relating to this emerging regionalism. The first factor is increasing uncertainty about the future of a multilateral framework under the World Trade Organization (WTO). The Doha Development Agenda held in Doha, Qatar in November 2001, still fails to reach an agreement for concluding negotiations among the 149 members of WTO. The second factor is the strengthening and expansion of the European Union (EU) in Europe, and the creation of the North America Free Trade Agreement (NAFTA) in North America and the enlargement of Pan-Americanism. The deepening and widening of trade blocs in Europe and North America caused the East Asia nations huge concern that their exports would face fierce competition due to the large markets of EU and NAFTA. The third factor, which is a catalyst in considering issues of the new regional integration in East Asia, is East Asian Financial Crisis of 1997-98. The financial crisis fostered a new belief that the East Asian nations need to band together so that the contagious spread of crises could be minimized by creating a regional financial framework.

In order to make the development of their economic community more crucial and advanced, the East Asian nations are now undertaking its development of the regional integration that would bring the huge prosperity to the region. At the center of a whole series of preferential trade arrangements in the region, the Association of South-East Asian Nations (ASEAN) has a significant role in developing a regional framework for the creation of a common market in the region. ASEAN is currently negotiating bilateral and regional free trade agreements with countries in and outside the region. In the arrangement, the ASEAN Free Trade Area (AFTA) has been the most advanced and proactive effort to lead to the creation of a common market in East Asia. However, actual effectiveness of the tariff reduction and trade liberalization scheme in AFTA still remains at a low level because ASEAN, compared to other region such as EU or NAFTA, has obviously lower levels of intra-regional trade, and thus could not take advantage of its tariff reduction and trade liberalization. In 2004, in fact, ASEAN’s intra-exports accounted for 23.1 percent of its total exports and its intra-imports accounted for 23.1 percent of its total imports whereas EU and NAFTA intra-exports accounted for 67.6 and 55.9 percent and its intra-imports for 66.2 and 35.3 percent, respectively of its total exports and imports.

The empirical evidence supports the claim that AFTA could be a more effective trading arrangement by linking Northeast Asian nations – China, South Korea and Japan –, and representing the entire East Asian region. As the two major countries with strong interests in the regional integration, more importantly, China and Japan have central roles in influencing an agenda for promoting economic cooperation. This paper thus assesses that the key to successfully developing regional economies lies in the assessment of implications China and Japan to bring for the economic integration in East Asia by exploring issues of the initiative in the regional development.