Asia Integrates Economically

Global financial crisis drives the region closer together, ADB says

Asia's countries are being increasingly driven into each other's arms economically as regional integration has progressed in the wake of the 2008/09 global financial and Eurozone debt crises, which have necessitated greater Asian cooperation, according to a new report from the Asian Development Bank, which nonetheless raises concerns about the so-called "noodle bowl" of proliferating bilateral free trade agreements.

With the advanced economies readjusting to the crisis, Asia continues to explore new ways to enhance regional cooperation and collaboration, according to the report, the Asian Economic Integration Monitor. Because of the crisis, financial integration has been accelerating, with intraregional asset holdings rising, and Asian investors increasing bond purchases from China and Japan.

The share of intraregional exports, however, has remained largely unchanged, at 56 percent in 2011, and trade in services, while increasingly important, remaining below the level of trade in goods.

Intraregional remittances within Asia are rising rapidly, indicating growing intraregional labor mobility. While regional connectivity is improving, demand continues to rise faster than supply, widening the infrastructure gap.

And, while tariffs have continued to decline globally even in the face of the long-running economic downturn, which usually causes protectionism to rises, transport and trade transaction costs, along with other non-tariff barriers, are becoming more important. This Increasing interdependence underlines the importance of regional public goods in addressing both global and regional issues—such as climate change and the environment, epidemics, disaster preparedness, good governance, and cross-border crime.

The big question, the report says, is whether Asia can unravel the so-called "noodle bowl" of free trade agreements. By January of this year, countries in Asia had ratified a bewildering 109 regional free trade agreements, with another 148 in various stages of development.

Economists say that tangle of agreements creates more confusion - and in some cases more protectionism as countries engaging in mutual agreements tend to put at a disadvantage those not party to the agreements. However, the failure to conclude the Doha Development Agenda, which has been frozen for 12 years, has caused governments across the region, if not across the world, to opt for bilateral agreements.

The Obama administration is ostensibly seeking to clear up some of those tangles through proposed implementation of the proposed Trans Pacific Partnership, which would take in most of the countries in the region, although critics argue that since it doesn't include China, it amounts more to containment of what is now the second-biggest economy in the region, rather than a true attempt to arrive at free regional trade.

The ADB "does not question choices made by Asian policymakers, or revisit arguments on the first- versus second-best ways to liberalize trade. Instead, it examines the current situation and asks "where do we go from here, and how do we do it?"

Where we go is probably seeing the noodle bowl - known as the spaghetti bowl on the other side of the world -- get more tangled. The Asian Development Bank expects the number of bilateral free trade agreements to increase. There appears little prospect that the Doha Round, initiated in November of 2001, will go anywhere soon. Talks have stalled between the developed nations, led by the US, the European Union and Japan, and the developing countries, led by principally by Brazil, China and India, over issues including agriculture, industrial tariffs and services as well as non-tariff barriers.

A successful conclusion "would likely remove much of the motivation to pursue new FTAs, the ADB says, "But question remains as to whether a successful conclusion is even likely, let alone when."

Several proposals have been advanced to deal with the noodle bowl. These can be broadly grouped into two categories. The first, consolidation, would involve compressing the current bilateral agreements into a broader, region-wide agreement that make the intraregional agreements obsolete.

Multilateralization would grant nondiscriminatory preferences to nonmembers, eliminating any margin of preference. Of the two approaches, multilateralization would be ideal.

"However, as we have seen in the Doha Round discussions, there are some very difficult issues that will take time to resolve. Yet, there are several interim steps that can prepare the groundwork for taking this approach, such as harmonized reduction of external tariffs and dilution of rules of origin.

The report points to the ASEAN-led Regional Comprehensive Economic Partnership, which "could pave the way for consolidating ASEAN FTAs under a single regional agreement, although it is still too early to tell."

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