Japan Economic Foundation

Chairman's Article
(excerpts from JEF's Magazine "Japan Spotlight")

26 . How Should We Deal with 3 FTA Proposals in Asia?

How Should We Deal with 3 FTA Proposals in Asia?
March/April 2008
Noboru Hatakeyama
Chairman and CEO
Japan Economic Foundation

ASEAN countries, Japan, China and South Korea have been considering establishing an Asian regional FTA, consisting of these countries and others. As an institutional organization to cover each region, North America has the NAFTA and Europe has the EU. A possible Asian regional FTA is Asia's undertaking to catch up with the regional integrations in North America and Europe. There are three proposals on the table as follows.

1. East Asia Free Trade Area (EAFTA) proposed by China, consisting of ASEAN+3 (Japan, China and South Korea)

2. Comprehensive Economic Partnership in East Asia (CEPEA) proposed by Japan, consisting of ASEAN+6 (Australia, India and New Zealand in addition to the three mentioned above)

3. Free Trade Area of the Asia-Pacific (FTAAP) proposed by the United States

At a meeting of ASEAN+3 economic ministers held in Kuala Lumpur in August 2006, the ministers were briefed about a feasibility study on the proposed EAFTA conducted by a joint expert group chaired by a Chinese. The ASEAN ministers stressed "the need to expeditiously conclude ASEAN-plus-one FTAs as the foundation for deeper regional integration." ASEAN has been negotiating FTAs respectively with six countries in the context of ASEAN+6 mentioned above. Since ASEAN's negotiations with each partner country were conducted one by one without having them formulate a group, the ASEAN negotiation formula was called "ASEAN plus one." At that time, ASEAN concluded an FTA only with China, which can be called in this context "ASEAN plus China." Therefore the ASEAN ministers insisted that ASEAN plus South Korea or Japan should be concluded before an EAFTA is discussed formally between the governments of East Asian countries. The EAFTA idea was also discussed at the ASEAN+3 summit held in Cebu, the Philippines, in January 2007. ASEAN+3 leaders noted that they should continue to examine other possible FTA configurations such as CEPEA and they also welcomed South Korea's proposal to conduct a phase II study, involving in-depth sector-by-sector discussions on details of the EAFTA. As of now, the sector-by-sector EAFTA study has been conducted under the leadership of South Korea.

Although the CEPEA proposal had been just taken note of when it was submitted at first to the ASEAN+3 economic ministers' meeting in August 2006, the second East Asia Summit held in Cebu in January 2007 agreed to launch a Track Two study on it and asked the ASEAN Secretariat to prepare a time frame for the study. Study group meetings were already held several times under the chair of Japan and participants have been assigned to report on issues related to CEPEA.

The FTAAP was formally proposed at the 14th APEC economic summit held in Hanoi in November 2006. APEC economic leaders instructed officials to undertake studies on ways and means to promote regional economic integration, including an FTAAP as a long-term prospect, and report to the 2007 APEC economic summit in Sydney.

What would be the relationship between the EAFTA, CEPEA and FTAAP?

Of course each of the three has its merits and demerits. A study on the EAFTA is most matured at this stage, having entered into a phase II study. However, the EAFTA does not include India, an emerging economic giant, as a member. It does not include Australia either whose economy ranks fourth in Asia. CEPEA does include these two important countries. However, the EAFTA and CEPEA do not include the United States. Of course it would be strange for the United States, not located in Asia, to be a member of an East Asian regional integration. However, the United States offers the biggest markets to many East Asian countries including Japan and China. Therefore, it is in the interest of all if we come up with a geological scheme to include the United States institutionally. Such a scheme is the FTAAP. By adding a "Pacific" element to Asia, APEC enabled the United States to be a natural member. The FTAAP includes Canada and Taiwan which are not members of the EAFTA and CEPEA. The FTAAP, however, does not include India. On the other hand it includes as many as 21 economies. To conclude an FTA among 21 economies may be difficult. Perhaps it is better to recruit members of an FTA from like-minded economies of APEC.

With these merits and demerits, it is a waste of time to argue which FTA should be studied first. There are three platforms for each FTA to be discussed, namely the ASEAN+3 summit for the EAFTA, the East Asia Summit for CEPEA and the APEC economic summit for the FTAAP. Why don't we have them compete with each other on a first-come, first-served basis?