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Report: Regional Economic Integration in Southeast Asia an Opportunity, Not a Threat, for Global Trade System

At the World Trade Organization's biennial Ministerial Conference this week in Bali, Indonesia, one of the issues that trade officials will be grappling with is how to integrate the proliferation of regional trade agreements into the WTO's global trade framework.

Against this background, economists Peter Petri and Michael Plummer argue in a new East-West Center publication that WTO leaders should not consider proposed trade deals in the Asia Pacific region as a threat, but rather as an opportunity.

Petri and Plummer conclude in the new policy study, "ASEAN Centrality and the ASEAN-US Economic Relationship," that Southeast Asia has become a focal point of Asia's rapidly changing economic architecture. They note that the 10 member states of the Association of Southeast Asian Nations, or ASEAN, are becoming increasingly stable and politically confident, and constitute an emerging economic powerhouse.

As a result, Petri and Plummer write, ASEAN is becoming a much-courted economic partner. Within the next few years, ASEAN could cement intra-regional cooperation through the planned ASEAN Economic Community and establish a wider Regional Comprehensive Economic Partnership (RCEP) with 16 members, including Australia, China, India, Japan, Korea and New Zealand. Some ASEAN member states will also play prominent roles in the Trans-Pacific Partnership, or TPP, a high-standard trade agreement initiative involving 12 economies on both sides of the Pacific, including the United States.

"The term 'ASEAN centrality' has been coined by member nations to underscore how internal cohesion can be used to advance economic progress within the region and to manage relations with external partners," Petri and Plummer write. "ASEAN centrality is often seen as a benchmark both for regional integration and for shaping external relationships with partners such as the United States. Centrality is desirable not only for the region, but also for most external partners--a vibrant, integrated ASEAN makes a stronger economic partner and a more reliable political ally."

The question for the United States, they say, is whether it can deepen its engagement with ASEAN, while also respecting the region's quest for centrality. "ASEAN is a key strategic and economic partner of the United States, and its importance is projected to rise over time," they write. "For example, U.S. investments in Singapore alone are twice those in China. But the United States has resisted an ASEAN-wide free trade area based on relatively weak rules acceptable to all ASEAN members. In turn, U.S. efforts to develop rigorous relationships with selected ASEAN countries have been criticized as disrupting regional cooperation. Some welcome the American presence as a guarantor of regional security, but still prefer to leave economic policy to ASEAN decision makers alone."

To reconcile ASEAN centrality with regional economic interests, they say, ASEAN member states can be expected to follow a two-speed strategy. On one hand, they will want to maximize their own economic potential through close ties with external partners. On the other hand, they will need to intensify integration within ASEAN and support less advanced members in becoming more competitive in the global marketplace.

From the viewpoint of the United States, they say, the two-speed approach argues for recruiting individual ASEAN members into the TPP if they are ready to assume rigorous obligations, while engaging ASEAN as a whole in policies that support capacity building, connectivity and reform.

Petri and Plummer project that the regional gains from ASEAN centrality, the RCEP and the TPP would be considerable. Completing the ASEAN Economic Community alone would increase regional GDP by more than 5 percent, they project, with all member countries registering gains. The RCEP, TPP and other wider external agreements could contribute significant additional gains.

The TPP in particular should generate large benefits for ASEAN as a whole, they write, especially if it were expanded from the current four Southeast Asian participants (Brunei, Malaysia, Singapore and Vietnam) to also include Indonesia, the Philippines, and Thailand. They estimate that ASEAN's total gains would be three times as great under the TPP as they would under the RCEP, since the TPP provides for deeper integration and preferential access to large new markets, while the RCEP overlaps an already complete network of free trade agreements between ASEAN and other members.

They emphasize that:

"ASEAN policymakers should not be misled by the argument that they must choose between the RCEP and the TPP, since both produce gains. Moreover, these benefits are complementary -- the TPP focuses on deeper integration with the Americas, and the RCEP on continuing integration across Asian markets."

Their report finds that:

"the benefits of implementing both agreements simultaneously amount to roughly 90 percent of the sum of benefits derived from implementing each agreement alone -- in other words, the agreements deliver different, largely complementary gains. At the same time, overlapping membership between the two initiatives should ensure that they do not devolve into competing blocs."

Finally, they say, the TPP itself can be designed to support the goals of ASEAN centrality, with provisions accessible to all reform-minded economies and a focus on competition and economic efficiency rather than rules prescribing specific governance or business systems.

"These new integration efforts, in turn, could play an important role in helping shape the global trading system," Plummer and Petri write. "Just as ASEAN faces a false choice between the TPP and RCEP, the WTO leaders face a false choice between multilateralism and regionalism in the global trading system, as the latter process in Asia could easily support the former if fashioned correctly."

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The East-West Center promotes better relations and understanding among people and nations of the United States, Asia and Pacific through cooperative study, research, and dialogue. Established by the U.S. Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

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