Prospects for Economic Integration on North-East Asia
and the Wider Region
Keynote Speech
Dr. Kim Hak-Su
Under Secretary-General of the United Nations,
Executive Secretary, United Nations Economic and
Social Commission for Asia and the Pacific
Distinguished Representatives, Ladies and Gentlemen,
It is a great pleasure for me to have this opportunity to present
the keynote speech at this Asia Society conference. As you know,
globalization has led the world toward greater integration of economies
and societies. The benefits are clearly visible in the increased
trade, higher growth and falling poverty of countries fully engaged
in the process. However, globalization has also been controversial
because of the uneven distribution of its benefits and its equally
visible negative impacts such as job losses, rising income disparity
and environmental challenges.
The Asia-Pacific region vividly illustrates the phenomenon of globalization.
Many East and South-East Asian countries have experienced high growth
rates, better living standards and an impressive drop in poverty.
But many other countries, including the least developed, landlocked
and small island countries and transitional economies in the region,
have been unable to properly compete in fast-paced world markets
or to exploit the opportunities of globalization owing to lack of
infrastructure, resources and skills.
The Asia-Pacific region has considerable potential strengths with
which to promote development in poor and marginalized countries
to ensure that global development agendas work for them. The region’s
savings level is the highest in the world and the amount of accumulated
foreign reserves was about $2.1 trillion at the beginning of 2004.
Even when we look at the sub-region of North-East Asia, it contains
the world’s most populous country, China and the world’s
second largest economy, Japan, as well as the largest country in
terms of land size, the Russian Federation. Increased economic integration
and cooperation in the region can certainly improve specialization
of production and provide a powerful driving force for its development
process.
In a period of growing global economic interdependence, regional
cooperation offers Asia-Pacific countries an effective vehicle for
promoting sustainable development. It would enable Asia-Pacific
countries, particularly small island economies and least developed
countries, to overcome the limited size of their domestic markets,
achieve economies of scale in production and diversify exports.
More efficient use of financial resources and technology available
within the region would also help to shield countries from the kind
of economic and financial volatility experienced in the 1997 financial
crisis.
Let me now address the trade and investment issues in North-East
Asia. The North-East Asian sub-region, which consists of China,
Japan, Democratic People’s Republic of Korea, Republic of
Korea, Mongolia, and the Russian Federation, is characterized by
its low level of economic integration, despite the fact that the
economies in the region are complementary to a large extent and
could potentially benefit substantially from economic integration.
All countries in the region, except the Russian Federation, are
members of the WTO. While Japan and the Republic of Korea are the
most advanced economies in the sub-region, China has emerged as
an engine of growth, not only in the sub-region, but also in the
Asia-Pacific region and, indeed, for the world at large. China has
emerged as the leading export market for the Republic of Korea,
replacing the United States, and also has become a leading destination
for foreign direct investment (FDI) from the Republic of Korea,
and, to a lesser extent, Japan.
All North-East Asian countries underscore the primacy of the multilateral
trading system. However, in the wake of the breakdown of multilateral
trade negotiations at Cancun, the countries have been slow to reconsider
their trade policy options towards deeper and wider sub-regional
economic integration. Although some bilateral investment treaties
have been signed in the sub-region (that is, between Japan and the
Republic of Korea), there are no bilateral trade agreements among
any of them. Instead, the sub-region is potentially bound together
through initiatives that countries are taking individually to sign
BTAs with ASEAN. ASEAN and China are establishing a free trade area
by the year 2010, and the Republic of Korea and Japan have followed
suit with proposals to negotiate similar arrangements with ASEAN.
Japan is negotiating FTAs with individual ASEAN countries, and has
already an FTA with Singapore. The ultimate result could well be
a mega-bloc consisting of ASEAN + 3. But, at the moment it looks
more like ASEAN + 1 + 1 + 1.
Given the trend towards deeper integration between South-East and
South Asia through the BIMST-EC process, and the planned FTA between
India and ASEAN (India already has a BTA with Thailand), ASEAN +
3 linked with South Asia could eventually evolve into a pan-Asian
free trade area by the year 2020. The key is political will. However,
due to many reasons, which include historical ones, the economic
integration process in North-East Asia has been slow. Opposition
of vested interests and the political importance of sensitive sectors
such as agriculture, are also major obstacles. For instance, the
Japan-Singapore BTA excludes agricultural products, while in the
Republic of Korea there were large demonstrations against the Republic
of Korea-Chile FTA. Similar obstacles are also hampering progress
in the Doha Development Agenda. In North-East Asia, the Democratic
People’s Republic of Korea’s isolation is also not conducive
to economic integration, although a slow but gradual opening up
seems to be taking place.
Political obstacles can be overcome, however, as witnessed by the
recent establishment of the South Asia Free Trade Area (SAFTA) after
years of slow progress, as countries realize that in an era of globalization,
economic prosperity can only be increased and sustained through
deep and meaningful economic integration. However, in order for
such economic integration to be successful, Governments need to
engage the private sector, civil society and other stakeholders
in the decision-making process to build a solid national consensus.
At the same time, reforms and deregulation efforts at the national
level should also be sustained.
It is interesting to note that both China and the Republic of Korea
are bound together through Asia’s oldest regional trade agreements,
the Bangkok Agreement, while Mongolia has expressed interest in
joining the Agreement. The recent revitalization of the Bangkok
Agreement has paid off, as its members are currently concluding
the third round of concessions and are on the verge of agreeing
on a common set of preferential rules of origin. Once this task
has been finished, the first session of Ministerial Council is planned
sometime this year when the Agreement is renamed as the Asia Pacific
Trade Agreement. As APTA has members from South, South-East and
North-East Asia, it may well act as a building bloc and catalyst
towards deeper economic integration of the Asia-Pacific region as
a whole.
While there is certainly scope for economic integration in North-East
Asia, as there is in the rest of the Asia-Pacific region, such integration
should always be seen as a building bloc of the multilateral trading
system. Therefore, any regional or bilateral trade agreements should
be consistent and conform to the principles and rules of the multilateral
trading system in order for them to work efficiently.
In addition to the trade and investment issues, I would like to
mention UNESCAP’s initiatives in transport cooperation. UNESCAP
has worked extensively in the transport sector to promoted regional
development cooperation as an effective means for countries to meet
the emerging challenges of globalization. The most significant transport
projects promoted by ESCAP are the Asian Highway and the Trans-Asian
Railway, which together provide a web of transport links spanning
the region.
The Intergovernmental Agreement on the Asian Highway Network was
signed by 26 member countries at Shanghai during the 60th session
of ESCAP. China, Japan, Mongolia, the Republic of Korea and the
Russian Federation from the North-East Asian region have signed
the Agreement, and the Democratic People’s Republic of Korea
is positively considering the signing of the Agreement. The process
of negotiating the Agreement has been one of constructive partnership
involving all countries concerned. It clearly demonstrates the desire
and capacity of Asian countries to work together, now and for the
future, to achieve common goals.
As you know, trade among the countries of the region is growing
faster than anywhere else in the world. With the Asian Highway in
place, new opportunities will be created, and economic growth and
social development will be further strengthened. The involved Governments
are committed to developing the 140,000 kilometer regional transport
network that spans 32 countries. This will certainly strengthen
regional integration and economic cooperation, accelerating trade
and tourism in the region.
As a further step in the development of the Asian Highway, UNESCAP
will continue to implement programs aiming to promote the mobilization
of resources for the development of roads in member countries in
collaboration with regional and international development banks
and bilateral donors.
Realizing the potential benefits of the Asian Highway agreement,
UNESCAP member countries requested this year to develop a similar
agreement for the Trans-Asian Railway (TAR) network. The Trans-Asian
Railway network, cutting across the entire Asian continent, offers
a land transport alternative, which connects Asian markets with
Europe and facilitates intra-regional and inter-regional movements.
The network was updated in 2003 to include new linkages proposed
by member countries and now comprises over 80,000 km of tracks in
25 countries. Rail transport has considerable potential, particularly
for Asia’s landlocked countries, and offers significant advantages
for the environment and safety. UNESCAP secretariat is now working
on an intergovernmental agreement on the Trans-Asian Railway network,
as well as assisting countries in developing appropriate regional
strategies to meet their social and environmental needs. The improvement
in interconnectivity among the countries in the region is expected
to make better use of their infrastructure and contribute to economic
development of regional countries with strengthening regional economic
integration.
Recognizing the potentials of ICT in alleviating poverty and its
impact on globalization processes, UNESCAP set up the Information,
Communication and Space Technology Division in mid-2002, and has
been working on the promotion of the use of ICT to reduce the digital
divide in the Asian and Pacific region. In response to the need
to strengthen regional broadband network infrastructure, UNESCAP
is focusing on creating the necessary regional consensus and regulatory
environment, and building the requisite skill base, as well as promoting
broadband applications such as e-government, e-business and e-learning.
Regarding the regional cooperation and integration in finance,
I would say that the countries in the region started to work together
much closer after the 1997 financial crisis. The various regional
initiatives on finance, including the ASEAN Surveillance Process,
the Manila Framework Group, the Chiang Mai Initiative, the ASEAN
Framework Agreement on Services and the Asian bond initiative, emerged
after the crisis. The Chiang Mai Initiative was designed to provide
liquidity support for member countries that experience short-run
balance-of-payments deficits in order to prevent future crises,
while the Asian bond initiative is expected to lead to a basket
of dollar-denominated bonds issued by Asian sovereign and quasi-sovereign
issuers.
An extension of the Chiang Mai Initiative that cover a large section
of the Asia-Pacific region would raise liquidity and make the initiative
an effective line of defence against speculative attacks. Convergence
criteria similar to those proposed for the Asian bond market could
be developed for the extended the Chiang Mai Initiative. Further
organizational and operational details would have to be worked out
before it could serve as a fully-fledged regional financial mechanism
comparable to the European Monetary System.
Together with the Chiang Mai Initiative, establishing an Asian
monetary fund (AMF) has been also debated as a complementary role
to IMF, that can provide funds required in a crisis. However, setting
up an AMF would depend on the region’s ability to integrate
with the international financial system. An extended Chiang Mai
Initiative could be a stepping-stone in establishing an AMF. The
linkages between AMF and IMF would need to be spelled out to ensure
that they are complementary and not competing arrangements.
Distinguished participants,
Various trade, finance and transport agreements have contributed
to regional integration in many ways and the signs are that forces
of integration are gaining strength. UNESCAP is uniquely positioned
to assist countries in forging greater integration in the region
and in particular promoting greater linkages among sub-regional
institutions. In order to promote greater regional integration,
UNESCAP is coordinating, facilitating and improving the cooperation
mechanisms that are being pursued, as well as their linkages to
the multilateral processes. The end-result, I am sure, will be a
vibrant North-East Asia stimulating trade and growth across the
entire Asia-Pacific region.
Thank you.
|