Finding the right balance

Updated: 2012-11-28 08:00

By Liu Junhong (China Daily)

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Regional cooperation requires innovative thinking and approaches in line with realities of respective economies

At the Seventh East Asia Summit held at the Peace Palace in Phnom Penh, Cambodia, a consensus was reached on launching negotiations for the China-Japan-Republic of Korea Free Trade Area and the Regional Comprehensive Economic Partnership, in pursuit of an Asian free economic zone.

In the context of intensified maritime territorial disputes among some Asian countries, the consensus enhanced confidence that Asian countries will unite and pursue common interests, and showed their commitment to making unremitting efforts for regional cooperation.

But due to the countries' different levels of industrial development, economic structure and social conditions, it will be difficult for them to pursue common development in a simple and unified way. Pursuing a "unified and single regional rule" will undoubtedly exacerbate differences, and even lead to the differentiation of the regional structure. Behind the common interests of Asian countries, there is the reality of different interests. Only by showing fair concern for all these different interests can common interests be agreed on equal terms.

After the East Asian financial crisis in the 1990s, East Asian countries reached a consensus to jointly address the crisis through mutual assistance and cooperation. In this context, at the end of 1997 the ASEAN members invited the leaders of China, Japan and the ROK to join them to discuss regional development plans, and the basic framework of regional cooperation, namely ASEAN plus China, Japan and the ROK (10+3) was formed.

After 15 years of cooperation, East Asia has built up a series of cooperation mechanisms that have promoted economic, trade and investment ties, increased cultural exchanges and deepened non-traditional security cooperation, such as disaster prevention and mitigation. The countries have become each other's important trading partners and managed to avoid being negatively affected by the crises that have originated in the United States and Europe.

The 10+3 meeting summarized the cooperation over the past 15 years and lauded the cooperation mode, and put forward the Phnom Penh Declaration on the East Asia Summit Development Initiative, pointing out the direction for future regional cooperation.

In the post-global financial crisis period, the faltering world economy and shrinking export market have brought new challenges for the sustainable development of East Asian economies, and to seek new ways, in accordance with regional characteristics, has become the regional consensus. But the problem of the development gaps between countries is still prominent as there are many developing countries, such as China, and underdeveloped countries, such as Myanmar, Cambodia and Laos, as well as developed countries, such as Japan, the ROK and Australia.

The per capita GDP of Japan, Singapore and Australia in 2010 exceeded $40,000, which is about 10 times that of China and 40 times that of Vietnam, Laos, Myanmar and Cambodia. Japan, which monopolizes a considerable proportion of core components, raw materials and production equipment, advocates the establishment of a region-wide free trade zone and implementing a single zero tariff. By dominating industry standards and investment rules, Japan can build an industrial chain covering the whole region so as to monopolize the interests of regional free trade. The relatively weak industries in developing countries will have to face the impact of this. This is a foreseeable reality.

A relatively uneven structure also exists in the China-Japan-ROK cooperation. In 2011, a joint study by the three countries concluded that a China-Japan-ROK FTA will benefit all the parties. However, Nomura Securities argues that benefits brought by the FTA will be uneven, as it will expand Japanese exports by $60 billion, while increasing the deficits of China and the ROK.

Currently, 60 percent of Japan's exports to the ROK and 70 percent to China are tariffed at a relatively higher rate than Japan's import tariffs. Implementing a unified zero tariff would mean Japan's exports would enjoy a greater tariff reduction than China and the ROK.

The tariff rate for Japan's construction machinery exports to China is 8 percent, which means, for example, that China's Sany Heavy Industry Co can compete with Japan's Komatsu. If the import tariffs fall to zero, to remain competitive against Japan's Komatsu and Hitachi, Sany must cut prices by 8 percent, or be exempted from domestic tax by 8 percent or improve productivity by 8 percent to maintain the same market share. However, none of three conditions can be met easily.

Those advocating the use of the FTA to promote industrial upgrading and structural adjustment have underestimated the resulting social risks. In the FTA negotiations, joint research conducted by the three countries only analyzed the economic effects and assessed the contribution to GDP growth, ignoring the social effects.

After the rules are made uniform, foreign capital will change the mode of agricultural production. Will it lead to the formation of a "single plantation" mode? What changes will it cause to rural social structure and what will be the subsequent social impact?

Only the Ministry of Agriculture, Forestry and Fisheries of Japan seems to be making such assessments, which are more pessimistic than its Cabinet Office's.

In the post-crisis era, regional cooperation requires innovative thinking and applicable approaches that are in line with regional realities and the long-term goal of sustainable development. In fact, the North American FTA and the European Union economic integration suggest that a single regional rule cannot address the problem of imbalances in regional development. The North American FTA exacerbated social problems in Mexico, while the EU exposed the disequilibrium in European investment.

The establishment of an FTA, especially one between developed and developing countries, is not necessarily bound to promote sustainable and balanced regional development; regional economic integration based on an FTA does not necessarily achieve common interests in the region, nor can it point to a strategic objective of regional economic development. Regional cooperation among developing countries needs to abandon dogma and pursue a common and sustainable development path that accords with local conditions and takes care of the interests of all parties.

The author is a researcher with the China Institutes of Contemporary International Relations.

(China Daily 11/28/2012 page8)