ASIA’S JOURNEY TO PROSPERITY Policy, Market, and Technology over 50 Years Chapter 15: Strengthening Regional Cooperation and Integration in Asia Outline 01 Why regional cooperation and integration (RCI) 02 Key RCI initiatives in Asia over the past 50 years 03 RCI in Asia’s subregions 04 Asian Development Bank and its role in RCI 05 Looking ahead 06 Questions and further readings 2 1. Why regional cooperation and integration (RCI)? • What is regional cooperation and integration (RCI)? ❖ RCI refers to policies ❖ RCI has played an and initiatives of important role in countries in a region supporting Asian to engage in close development over the economic cooperation past half century. and promote the integration of their economies, especially through trade and investment. 3 1. Why regional cooperation and integration (RCI)? (cont.) • RCI supports development through several channels. ❖ RCI contributes to ❖ RCI enhances cross-border ❖ RCI promotes ❖ RCI provides a peace and stability, economic opportunities, the provision of platform for a creating an especially trade and regional public stronger Asian environment of investment, allowing countries goods, voice. mutual trust that to benefit from comparative including allows countries to advantage, economies of scale, environmental deepen economic technology and skills transfers, management. cooperation and and mitigation of interdependence. macroeconomic and financial risks. 4 Timeline2. Key RCI Initiatives of development in Asia over the assistance past 50 years • After World War II, several RCI initiatives took place in Asia, including the creation of the Association of Southeast Asian Nations (ASEAN) in 1967. Late 1950s to 1960s: Technical and research institutions in the region were established to cater to specific priority areas—the Asian Institute of Technology in Thailand (1959); the International Rice Research Institute in the Philippines (1960); the Asian Productivity Organization in Japan (1961); and the Asian Institute of Management in the Philippines (1968). 1950 1960 1970 1980 1990 2000 2010 z 1967: 2003: 2010: 1954: Association of Southeast 1992: 1947: Leaders ASEAN+3 SEATO Asian Nations (ASEAN) was ADB’s GMS UN ECAFE (later agreed to established Chiang (a regional created was ESCAP) was establish Mai Initiative security established launched 1989: the ASEAN Multilateralization organization) 1966: Establishment of the Asian APEC was Economic was 2011: Development Bank (ADB) created Community 1950: established; it (AEC) ASEAN+3 Colombo Plan for Macroeconomic was dissolved 1963: Cooperative Economic Research Office was in 1977 Maphilindo (Malaysia, the Philippines, and Indonesia) 2000: Development in South established organization was established Chiang Mai and Southeast Asia Initiative was (region’s first multilateral 2015: 1961: created initiative to provide Association of Southeast Asia (ASA) was created AEC was finance for development) 1955: formally Asian–African Conference in Bandung, Indonesia (started the idea of “Third World” and the “South”) launched ASEAN+3 = ASEAN plus the People’s Republic of China, Japan, and the Republic of Korea; ECAFE = Economic Commission for Asia and the Far East; GMS= Greater Mekong 5 Subregion; ESCAP = Economic and Social Commission for Asia and the Pacific (ESCAP); UN = United Nations. 2. Key RCI initiatives in Asia over the past 50 years (cont.) • ASEAN’s original purpose was to maintain and strengthen regional security and stability. As stability took root, its priority shifted to economic cooperation. ASEAN played a critical role in nurturing mutual trust at the time Cambodia, the Lao People’s Democratic Republic, Myanmar, and Viet Nam began market-oriented reforms. 1977: ASEAN 1967: ASEAN Preferential 2003: ASEAN leaders agreed to establish the was Trading 1992: ASEAN ASEAN Economic Community (AEC). established to Arrangements Free Trade Area (AFTA) overcome 2015: AEC was formally was created conflicts launched. 1965 1975 1985 1995 2005 2015 AFTA and ASEAN’s other trade and investment frameworks 1976: The ASEAN ASEAN 1995: ASEAN Concord started provided the Framework attracted foreign direct investment (FDI) and knowledge cooperation on impetus for the Agreement on transfer, and fostered emerging regional production basic commodities, creation of Services was networks. particularly food Asia-Pacific created 2011: ASEAN Infrastructure Fund was established and energy, and Economic 1998: ASEAN 2010: ASEAN+3 (ASEAN plus the People’s industrial Cooperation Investment Republic of China, Japan, and the Republic of production (APEC) in 1989. Area was Korea) established the Chiang Mai Initiative 6 created Multilateralization 3. RCI in Asia’s subregions • RCI developed in Asian subregions at different speeds, with Southeast Asia and East Asia more advanced than others. Intrasubregional Trade Share, 1992-2018 40 (% of a subregion's total trade) 30 20 10 0 1995 2000 1992 1993 1994 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 ASEAN East Asia Central Asia SAARC Pacific (developing) Pacific (with AUS and NZL) ASEAN = Association of Southeast Asian Nations, AUS = Australia, NZL = New Zealand, SAARC = South Asian Association for Regional Cooperation. Source: Asian Development Bank calculations using data from International Monetary Fund. Direction of Trade Statistics. https://www.imf.org/en/Data (accessed 27 December 2019). 7 3. RCI in Asia’s subregions (cont.) • In South Asia—which for a long time struggled to secure stability, peace, and security in the subregion—RCI progress was hampered by geopolitical tensions. The South Asian Association for Regional Cooperation (SAARC) was established in 1985. It launched the SAARC Preferential Trading Arrangement (SAPTA) and the Agreement on South Asian Free Trade Area (SAFTA) signed in 1993 and 2004, respectively. However, they have had limited impact on intraregional trade. South Asia needs to deepen connectivity through transport, energy, and trade facilitation. It is also important to pursue broad-based, market-oriented reforms unilaterally and collectively to further integrate the subregion economically, and integrate more with other Asian subregions and the global economy. 8 3. RCI in Asia’s subregions (cont.) • Central Asia and the Pacific subregions also need continued efforts to boost RCI. Central Asia, after the collapse of the Soviet Union in 1991, ➢ In 1999, the South began several cooperation Pacific Forum arrangements to recover and (created in 1971 to foster maintain economic connectivity. The most recent is the Eurasian cooperation, especially in trade and economic issues), became the Economic Union, which includes a customs union. Pacific Islands Forum to denote its membership of both the north and Central Asia needs to develop economic south Pacific island countries. corridors that attract private sector participation and build value chains. These RCI can help resolve Pacific’s corridors should allow remote areas, challenges (small size, geographic agriculture, and small and medium remoteness, and vulnerability to enterprises to participate in private sector-led natural hazards) through: value chains. encouraging maritime and digital connectivity, managing shared Central Asia should also expand ocean resources, promoting regional cooperation on economic sustainable tourism and policy and structural reforms and explore working fostering human capital together on development of financial and capital markets. development. 9 9 4. ADB and its role in RCI • ADB’s founding was itself an example of RCI. ADB’s charter reflects that RCI has always been an important priority. Over the years, ADB has promoted its RCI agenda through subregional cooperation programs. ❖ Countries in the region wanted an ADB’s subregional cooperation programs: institution that would support Asian development and bring in • Greater Mekong Subregion (GMS) Economic Cooperation Program, established in 1992. This initiative was designed to foster economic linkages after countries launched market-oriented financial resources and know-how reforms. from within and outside the region • The GMS Program was followed by the Indonesia–Malaysia–Thailand Growth Triangle Program with the help of nonregional in 1993, and later by the Brunei Darussalam–Indonesia– Malaysia–Philippines East ASEAN members. Growth Area (BIMP-EAGA) Program in 1994. ❖ RCI has always been an ADB • In 1997, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) was created to support economic ties between South Asia and Southeast Asia. priority as reflected in its charter. • The Central Asia Regional Economic Cooperation (CAREC) Program was formally launched in ❖ ADB promotes its RCI agenda 2001 to facilitate trade, transport, and energy linkages following the 1991 breakup of the Soviet through subregional cooperation Union. programs. • In South Asia, the South Asia Subregional Economic Cooperation (SASEC) Program was established in 2001. 10 5. Looking ahead • Looking ahead, there remain many areas where RCI can further deepen and contribute to the welfare of the region and the world at large. First, trade and investment can be further liberalized and trade facilitated through subregional initiatives and multilateral agreements. Streamlining and harmonizing customs border procedures, for example, can ease cross-border flows. Second, megaregional free trade agreements (FTAs) that can act as building blocks for the multilateral trading system need to be