The Jakarta Globe, 31 March 2010

Dr. Pan Guoping

The China-Asean Framework Agreement on Comprehensive Economic Cooperation, which was signed between China and Asean in Phnom Penh in 2002, launched the process of increased economic integration in the Asian region.

This agreement was a precursor to the Asean-China Free Trade Area, which came into effect on Jan. 1, 2010. The establishment of the ACFTA has had an even greater impact on the economic integration of Asia, both economically and politically. While both the Framework Agreement and ACFTA were far reaching, I believe it is now time to take the next step and move to the establishment of an Asian version of the European Union around the issue of trade — an “Asian Trade Union” — which would greatly enhance the economic integration of Asia and ensure the region’s long-term sustainability.

But why take this next step at all? Well, for one, the economic challenges that Asia as a region has faced in the first decade of the 21st century were systemic and highlight a need for a new system, a new arrangement, not just tinkering with the old one. I would argue that trade integration at the regional, rather than global, level could bolster this multilateral mechanism and play a more significant role in realizing both free-trade and economic growth in the region.

Furthermore, economic integration under World Trade Organization rules, while theoretically advantageous for the economic growth of each participating country to be able to join together in a single free-trade system and to abolish all kinds of tariff and nontariff barriers, proved difficult within a multilateral framework, as evidenced by the collapse of the Doha round of trade negotiations.

Arguments to support a smaller number of participating countries include the reality that, with the number of the countries in a region being far less than in the world as a whole, the transaction costs would be relatively lower. So too would the time spent to bring about the desired goals of agreements. Other arguments include that Asia has similar economic growth patterns and systems of development, culture and, to some degree, languages, all of which would allow for ease of communication, negotiation and achievement of agreements. These shared qualities would allow regional agreements to be more intense than those under the WTO multilateral trade agreements, and their influence would be greater particularly on the elimination of tariff and nontariff barriers.

When put together, all of these advantages of increased regional economic integration would also reduce the uncertainty and risks that come from trading in a global market. It is worth reiterating once again, however, that the emergence of closer Asian regional economic integration would never be a substitute for globalization, but rather a vital and instructive complement to it.

Furthermore, recent economic performance in Asia, while still excellent in global terms, has stagnated, for instance, in terms of its internal trade, where trade within East Asian countries did increase in recent years but the overall proportion stayed low due to duplicated export products and greater instances of substitution rather than complementarity of exports. Equally, while there was rapid growth in the value of trade in Asian countries, for example the mutual exports among Asean and Northeast Asia (China, Japan and South Korea) has increased from 3.7 percent of the world’s total in 1987 to 7 percent in 2000, this was much lower than the equivalent figures and ratio within the countries of the EU over the same period. Moreover, Japan and South Korea, two of Asia’s major traders, did not perform well during this period, at least in relation to their volumes of trade, and since trade within Asean only accounted for one quarter of the total trade within Asia in 2004, any reduction is serious.

When discussing the composition of trade, we see that the majority of export goods to East Asia, especially from Southeast Asian countries, are basically intermediate products such as spare parts or raw materials, which though considered labor-intensive products are not high-value goods that could contribute significantly to overall economic performance in Asia.

Finally, the lack of a strong end-consumer market in Asia is a major barrier to the Asian Trade Union idea. As a consequence, it is relatively difficult to provide mutual help and support among Asian countries with the current trade policy and level of trade, in the event of an increasingly independent global economy.

Related policy toward Asian economic integration has been heavily dependent on US policy in this regard, which has been influenced in turn by the heavy dependence for goods from East Asia in the US market. Historically, the United States has countered any regional cooperation organization and mechanism developed in Asia which might become a long-term threat to US interests. Accordingly, it is essential to also build a unified economic policy coordination system in Asia, in order to ensure smooth economic growth and to minimize the impact of global volatility and the interests of individual countries.

So, if the argument for why to set up an Asian Trade Union has already been made, the question still yet to be answered is: Why now?

First, there is an unprecedented chance for Asian economic integration brought about by the current US dollar crisis. Secondly, to minimize the impact of decreasing demand from European and American markets for Asia’s export-oriented companies. The decrease in demand can be substituted for a more Asian market with China as the end-consumer market in the region providing the engine for this growth. Only the establishment of this China-oriented market will ensure the consumers for increased productivity in other Asian countries.

At the same time as actively promoting an Asian Trade Union, (along with carrying out our current free trade agreements and facilitating other cooperation efforts between Asian countries), we have to actively encourage the investment of petrodollars from the Middle East in the development of new infrastructure and industry, as well as to strengthen economic collaboration between Arab and Asian countries. As a result, each country participating in the Asian Trade Union, no matter how big or how small, will benefit from this free trade mechanism.

Of course such a big change in the regional economic and trade goals will need support and active participation from every government. To promote trade growth, they would need to set rational aims for regional divisions of labor to ensure stable economic growth and financial security across the region, to establish food and energy security targets, systems for environmental protection, energy conservation and reductions in greenhouse gas emissions. Furthermore, monetary cooperation and exchange rate coordination mechanisms will need to be set up. This of course should only be a first step, with economic cooperation only being a precursor to cooperation in other areas, such as culture, politics and security.

An Asian Trade Union then can be seen as both conducive to a new international economic order and as pushing Asia to move toward greater goals of fairness, justice, harmony and mutual benefit. Bold words indeed, but only when the Asian region moves to real integration will the majority of people benefit from it.

Dr. Pan Guoping is an executive research fellow at the Center of International Strategy Studies in Beijing.