Emerging Trends in Regional Cooperation and Integration in Asia and the Pacific 19 October 2009 Shanghai Strategic Leadership for GMS Cooperation Learning Program
Contents 1. Characteristics and drivers of Asian regionalism 2. Policy options in 4 areas of regional links 3. ADB RCI Strategy: Four pillars of regional cooperation 4. Integrating Asia 2020 5. A perception survey of leaders in Asian Regionalism Strategic Leadership for GMS Cooperation Learning Program
ADB Study on Asian Regionalism Characteristics of Asian regionalism How can Asian regionalism benefit Asian economies and the world? Moving towards an integrated, prosperous, and peaceful Asia? Strategic Leadership for GMS Cooperation Learning Program
Integrating Asia Strategic Leadership for GMS Cooperation Learning Program
Strategic Leadership for GMS Cooperation Learning Program Characteristics of Asian Regionalism Asian integration is rapid, broad, with global links Distinctive Asian regionalism: open, multi-speed, multi-track, pragmatic, bottom-up Cooperation is accelerating, but needs more focus Market-driven with increased support from Governments since 1997 Need to develop deeper institutional capabilities Asian regionalism is good for Asia, good for the world
Strategic Leadership for GMS Cooperation Learning Program Increased interdependance since 1997 INTRAREGIONALTRADE: Share of Asia s total trade conducted within it (50%) TRADE POLICY: Density of free trade agreements (100 FTAs) FOREIGN DIRECT INVESTMENT: Intraregional FDI share among Asian economies increasing EQUITY MARKETS: correlation of equity price increases MACROECONOMIC LINKS: Correlation of GDP growth TOURISM: Share of intraregional tourism inflows and outflows
Strategic Leadership for GMS Cooperation Learning Program RTA in East Asia Growth of RTAs in East Asia, 1976 2007 (cumulative number of RTAs) No. of Status of RTAs/ a Year RTAs Concluded Under Proposed Negotiation 1976 1 1 0 0 1986 1 1 0 0 1996 4 3 0 1 2000 7 3 1 3 2001 10 5 2 3 2002 14 6 4 4 2003 23 9 5 9 2004 42 14 16 12 2005 67 21 30 16 2006 96 31 42 23 2007/ b 102 36 41 25 /a Concluded RTAs include those signed and/or under implementation; RTAs under negotiation cover those with or without a signed Framework Agreement; and proposed RTAs include official pronouncements of parties to negotiate an RTA or actually conduct a feasibility study. /b Data as of June 2007. Source: ADB FTA Database, Asia Regional Integration Center (www.aric.adb.org)
Strategic Leadership for GMS Cooperation Learning Program Increased Asian Regionalism Why Now? Asian financial crisis in 1997 (contagion effects) Slow progress in WTO Doha Round (since 2001) Rapid economic growth of large emerging economies in Asia (China as the hub of regional production fragmented networks 50% of Asian Trade) Adoption of outward oriented economic policies
Regional and Transregional Forums Strategic Leadership for GMS Cooperation Learning Program
Subregional cooperation initiatives Asia Strategic Leadership for GMS Cooperation Learning Program IMT-GT Indonesia-Malaysia-Thailand Growth Triangle IMT-GT
Strategic Leadership for GMS Cooperation Learning Program Drivers of RCI Lower cost of transport, communications and energy Connecting the poor to the thriving regional economy Reducing financial vulnerability Managing spillovers among economies Fighting epidemics and natural disasters Limiting environmental degradation Facilitating and managing labour migration Exercising influence in global economic forums
Strategic Leadership for GMS Cooperation Learning Program Regional Public Goods -- Definition Regional cooperation is a mechanism to produce RPG A RPG is a service or resource whose benefits are shared by neighboring countries in a region RPGs are: - Nonrival: one country s consumption of the service or resource does not subtract from the amount available to other countries - Nonexcludable: no country in the region can be excluded from benefiting from the service or resource, except at prohibitive cost - These lead to market failure in the provision of RPGs - Most public goods are only partially rival and/or partially nonexcludable
Regional Public Goods -- Examples Cross-border infrastructure Trade and investment agreements Resources to address financial crisis: financial stability Mechanisms to contain communicable diseases Control of environmental degradation Strategic Leadership for GMS Cooperation Learning Program
Policy Options in 4 areas of regional links 1.Production (trade and investment) 2.Financial Markets 3.Macroeconomics 4.Social and Environmental Issues Strategic Leadership for GMS Cooperation Learning Program
Strategic Leadership for GMS Cooperation Learning Program 1. Production (Trade and Investment) Asia trade with itself as much as Europe and North America do with themselves Asia s trade and investment have become more integrated but remain closely connected to external markets Regional links are driven by production networks and business process outsourcing Trade dependency: The share of Asia s total exports to Europe and North America increases substantially when parts and components incorporated into final goods exported to those markets are taken into account (share of parts and components increased in Asia from 19% to 27% between 1992 and 2003 (world: 18% to 21%) Which initiatives could further integrate Asian production? (transport, communication and energy infrastructure, lower tariffs, trade facilitation, common standards) How to deal with the noodle bowl of trade agreements? (Consolidation under ASEAN+3 or East Asian Summit)
Asia trading with itself Strategic Leadership for GMS Cooperation Learning Program
Open Regionalism: No Fortress Asia Strategic Leadership for GMS Cooperation Learning Program
Strategic Leadership for GMS Cooperation Learning Program 2. Integrating Financial Markets Asian financial systems have improved since the crisis The region s financial connections are deepening, but Asia s capital markets remain more closely linked to global markets than with each other Interest rates and cross border Government bond-yields in Asia have converged Regional financial cooperation could dramatically strengthen national financial systems and their regional links If Asia invest more of its savings within the region, major benefits will follow (development of investment vehicles to finance SMEs and infrastructure and generate financial products to enable consumers and investors to use their incomes more productively) Many countries have restrictions on capital account transactions and on the entry of foreign banks and other financial firms ASEAN has prepared long term plans for developing capital markets and liberalizing capital accounts and financial services The Asian Bond Markets Initiative has helped strengthen the market infrastructure for local currency bond development
Converging bond yields in Asia Strategic Leadership for GMS Cooperation Learning Program
Strategic Leadership for GMS Cooperation Learning Program 3. Managing Macroeconomic Interdependance Asia s macroeconomic interdependance is deepening (GDP growth, inflation Asia s macroeconomic policies show little evidence of convergence (different monetary and fiscal policies and exchange rate systems) Regional cooperation will be important for managing regional and global macroeconomic challenges (financial crisis and global payments imbalances) Decoupling is only happening gradually There is a need to make macroeconomic consultation and surveillance more effective (establish an Asian Secretariat for Economic Cooperation under ASEAN+3) It is necessary to strengthen Asia s short term financing facility (pooling the massive foreign exchange reserves and improving the rules under which they are used for effective crisis management Multilateralizing the Chiang Mai Initiative) It is also necessary to cooperate more in exchange rate and macroeconomic policies
GDP growth correlation in Asia Strategic Leadership for GMS Cooperation Learning Program
Rising foreign-exchange reserves in Asia Strategic Leadership for GMS Cooperation Learning Program
Strategic Leadership for GMS Cooperation Learning Program 4. Social and Environmental Issues Need to connect the poor to the regional economy (education, employment, and access to markets) Increased migration and improved conditions for migrants can produce large social benefits (migrant remittancies:$200 million). Trafficking of women and illegal forced labor is a concern Effective institutions to manage threats to health (HIV/AIDS, Avian Flu, SARS) and safety (Tsunami) are a critical priority Trends in environmental degradation (air pollution, water management, dust storms, forest fires, climate change) are serious and require regional attention
ADB s RCI Strategy: 4 Pillars 1.Cross-border physical infrastructure and related software 2.Trade and Investment 3.Monetary and Financial Integration 4.Other Regional Public Goods Strategic Leadership for GMS Cooperation Learning Program
Strategic Leadership for GMS Cooperation Learning Program A Vision for Integrating Asia 2020 Asia s s share of world output expand to 35% in purchasing power parity (PPP) terms (28% in 2005) A single market for trade and investment Deep, liquid and integrated financial markets Effective macroeconomic policy coordination Workers moving more freely than today Collective efforts to address regional social and environmental issues Efficient and stronger regional institutions Stronger voice in global policy forums
Strategic Leadership for GMS Cooperation Learning Program How to achieve this vision? How to develop a regional cooperation architecture? Where to focus (ASEAN, GMS, all Asia?). Just one or many? Leadership for regional cooperation is necessary Government, private sector, civil society, academia, and international organizations have a role to play Politicians or Civil servants? Where to start? GMS is a practical and effective example of regional cooperation No need to replicate other models of cooperation, but many things can be learned from them (European Union) Asia has its own model(s) for regional cooperation
Strategic Leadership for GMS Cooperation Learning Program Regional Models compared Europe: gaining from shared regional sovereignty Very successful in economic terms, especially to reduce the income gap among member countries Deep institutional development (despite recent setbacks) Customs Union, Single Market, Monetary Union, moving towards common foreign policy, close political relations and consultations Asia: growth, adaptability, and flexibility Market-led integration followed by intergovernmental cooperation Open regionalism (global and regional integration happen at same time) Multi-track, multi-speed integration process, bottom-up approach Institution-lite: need to deepen and widen regional institutions
Strategic Leadership for GMS Cooperation Learning Program A perception survey on Asian Regionalism As part of the Emerging Asian Regionalism study, the ADB conducted a perception survey on Economic Interdependence among Asian Countries aimed to assess the views of a broad range of Asian opinion leaders on economic relations among Asian countries The survey questionnaire included 12 questions designed to assess the perception of Asian opinion leaders on regional cooperation initiatives, institutional development, and issues of regional economic identity (using the Eurobarometer as a reference model) 600 leaders from business, media, government and academia interviewed in September 2007
Strategic Leadership for GMS Cooperation Learning Program Assessment of current economic relations % share Trade and Investment (including the creation of regional production (networks,money and Finance (bond markets (.equities markets, banking, etc,cross-border Infrastructure (transport (.energy, communication, etc Health, Environment, Security, and provision of similar regional public goods 0% 10% 20% 30% 40% 50% 60% strong weak
The benefits of regionalism outweigh its costs Strategic Leadership for GMS Cooperation Learning Program
Strategic Leadership for GMS Cooperation Learning Program Regional Economic Institutions Create an Asian common currency (37%) Provide liquidity and financial support to Asian countries (68%) Facilitate economic policy dialogue and macroeconomic surveillance (75%) 100% 75% 50% 25% 0% All respondents East Asia Southeast Asia South Asia Establish a regional common market (74%) Develop common health, environmental, and security policies (72%)
Thank you. Strategic Leadership for GMS Cooperation Learning Program