However such moves taken by Singapore have raised some concerns by the regional countries. Other Asian political and business leaders argue that the bilateral FTAs could impede efforts toward a more liberalised global trading regime by acting in the interests of specific nations, rather than the region as a whole. Given the diversity of Asian countries and their individual sensitivities, any bilateral FTA signed by a specific nation would also contain differences in its coverage, rules and regulation when compared to a FTA signed by another nation.
They may not also be consistent with the FTA negotiated between ASEAN as a region and any of its dialogue partners. The outcome would be difficulty in managing ASEAN external trade relationship and increased cost of doing business as investors and traders will have to deal with differences in scope and speed of tariff reduction and rules and regulations. Thus this would hinder ASEAN integration effort and affect AFTA's credibility.
There is also the risk of the creation of back-door problem whereby unauthorised goods slip into the ASEAN markets through countries having bilateral agreements with outside country, escaping the charges and regulations of the regional market as a whole. This is because any goods that have 40% local content must be regarded as national and only then can enter the markets of other member countries.
With member countries having bilateral arrangements with outside countries, there are easier chances for foreign goods to enter the ASEAN markets illegally, escaping the proper tariffs and taxes, by the back door of member countries that form FTAs with them. Another reservation toward bilateral FTA is the fears that countries that are unattractive FTA partners may be left behind in a global trading environment dominated by bilateral agreements. The new regionalism, mainly through bilateralism has created unequal access to world markets.
Most of the bilateral agreements are between developed countries or in the case of the East Asia region, none of the agreements links a Less Developed Country (LDC) to a Developed Country (DC). LDCs make less attractive partners because of their smaller markets, demands for unequal transition periods and general reluctance to accept commitments to deep integration. In particular to East Asia region, most countries, with the exception of Singapore, Japan, Hong Kong and China are developing countries with small markets with no form of any bilateral agreements.
Hence, in this case, bilateralism may instead be a stumbling bloc for global free trade. Chapter 6: Regionalism and its progress in East Asia Regionalism refers to formal economic cooperation and economic integration arrangements, and agreements between two or more countries that are designed to achieve economic growth through trade and investment liberalization and facilitation. There has been an increase in the number of proposals for new preferential arrangements, both bilateral and regional, in East Asia.
Countries that were formerly against the preferential route to trade liberalization such as China, Japan and Korea, are now actively considering moves in this direction. The most significant of the new initiatives is the China-ASEAN Free Trade Area now under negotiation. In November 2001, ASEAN leaders and Chinese Premier Zhu Rongji endorsed the establishment of a free trade area between China and ASEAN economies within 10 years. This will be the world's biggest free trade area, encompassing 1. 7 billion people, a collective income of US$ 2 trillion and intra-regional trade of US$ 1. 2 trillion.
Other regional trading arrangement under negotiation include the East Asia Free Trade Area proposed at a summit meeting of ASEAN Plus Three in year 2000 and Northeast Asian Free Trade Area (China, Japan, Korea). Chapter 7: Role of Regionalism in East Asia The 1997 financial crisis was highly contagious in the region both through the usual trade and financial channels and through herd behavior among investors. On the trade side, the rapid depreciation of one country's currency could adversely affect the export competitiveness of other countries, especially neighbors producing the same products for the same export market.
The speed of the crisis spreading inside Asia illustrated the depth of economic interdependence among Asian countries. Hence there is a clear need for establishing a strong surveillance system at the regional level to detect signs of a crisis at an earlier stage and reduce its severity should it occur. Such a relation will lead to deep and fast exchange of information, which promotes cooperative action among them. Greater integration within the region is important and necessary as a countermeasure against any crisis.
In response to the financial crisis in Asia, the International Monetary Fund (IMF) acted as an international lender of last resort. The IMF had instituted the largest bailout in its history with the loans of US$ 54 billion to South Korea, US$ 40 billion to Indonesia, US$ 17. 2 billion to Thailand and US$ 1 billion to the Philippines. Also, the policies recommended by the IMF, such as tightening monetary policy and curtailment of government budgets, were not useful in the context of the Asian Financial Crisis. In fact, it caused economic depression to accelerate.
These approaches to the crisis taken by the IMF have been heavily criticized. The perception that the IMF was acting to protect the interests of Western lending institutions and to open Asian markets for western firms at the expense of Asian workers and the sovereignty of Asian countries was widely held in the region. Asian leaders no longer trust the U. S. or other international institutions for protection. Regionalism aids East Asia to raise its voice in the global world and attempt to seek its own 'made-in-Asia' solutions and independent actions in certain cases.
Regionalism offers opportunities to build a sense of community or to repair past tensions between neighboring economies. For example, the ASEAN plus Three members started scheduling not just summits but also regular meetings of senior officials, ministers, and leaders. The subjects on the agenda have become increasingly comprehensive, ranging from trade liberalization and monetary and financial affairs to e-commerce and the environment. This offers a chance for deeper interaction between countries. An important development in East Asia is the rapid rise of the China economy.
China was able to sustain an economic growth rate of 7-8% even in the midst of the crises elsewhere in the region, and it continues to record rapid expansion in both trade and inward investment. Over the decade 1990-2000, average real growth rate in China was 10% annually. Exports quadrupled from US$ 62 billion to US$ 250 billion. Hence there is a need by other economies in the region for stronger cooperation with China, both as a growing import market and as a rising competitor in export markets. There is great growth potential in China.
Hence regionalism opens up new opportunities for countries in the region to venture into the China market at favorable terms. Chapter 8: Effects of Regionalism on East Asia One of the positive effects of the 1997 financial crisis was to stimulate a nascent sense of East Asian regionalism although it had negative effects in the short term. In the long run, it brought ASEAN as a grouping closer together, as well as Northeast and Southeast Asia. There are a number of reasons to welcome a more developed system of cooperation in East Asia. Interdependence in finance, trade and investment has been increasing.
Potentially, regionalism assists the nation state in dealing with these phenomenons and in addressing some of the negativities of globalization. 8. 1 Short /Medium Term Effects First, regional integration has clearly intensified crisis contagion effect. Pure contagion refers to the fact that institutional investors, such as mutual funds, insurance companies, pension funds and hedge funds, tend to lump together sub-regions and countries in emerging markets, regardless of the specific economic soundness of the respective sub-regions and countries.
There are also spillover: (1) some countries have to apply competitive devaluations to remain competitive respective to similarly-exporting and currency-battered countries; (2) intraregional trade and investment interdependencies mean that crisis are transmitted through less exports, more imports and less investments to and from the region; and (3) foreign investors tend to make portfolio adjustments due to the fact that losses in one market lead funds to liquidate investments in other regional markets.
Second, regional responses to the crises have been failures. Japan's early proposal for an Asian Monetary Fund (AMF) was dismissed due to strong resistance from the US and the IMF. ASEAN was unable to deliver a quick and effective response to the crisis in Thailand and Indonesia. Third, regional economic integration, in a context of a general slump, strictly limits the domestic effects of national expansionary macroeconomic policies.
For instance, as Malaysia departed from the IMF prescriptions, while Thailand and Indonesia did not, its expansionary fiscal and monetary policies tended to result in themselves into more imports from neighbouring economies, into a higher trade deficit and therefore into additional restrictions on economic recovery. A viable alternative should have been a regional concerted effort to decrease interest rates and to provide fiscal stimuli, as suggested by the World Bank (1998).
Fourth, the post-crises scenario might result in national governments having second thoughts on further trade and financial liberalization, as its premature and indiscriminate implementation in 1990-1996 was a major factor of the turmoil. This may provoke a fatal blow not only to the opening trend respective to the global economy but also to the ongoing process of trade-barriers dismantling and financial opening in ASEAN and APEC.