FAIT Committee Report

The most significant economic integration initiative currently underway in Asia-Pacific is the “ASEAN Plus Three” (APT) initiative involving China, the ASEAN countries, South Korea and Japan. In November 2002, ASEAN held a summit with these countries to establish agreements for closer economic integration. China has taken the APT concept the furthest by initiating free trade area negotiations with ASEAN at the summit. ASEAN and China signed a framework agreement for comprehensive economic co-operation that committed to negotiation of a free trade agreement between China and ASEAN within 10 years. It is anticipated that any ASEAN–China free-trade agreement would eventually enlarge to include South Korea and Japan. If this 13-country free trade area were successfully formed, the APT would be the largest free trade agreement in the world. It also raises the potential concern for Canada of an inward-looking Asian trade bloc representing a market of 1.8 billion people.

In the meantime, the most evident progress of the APT relationship has been in monetary and financial co-operation. The Asian Crisis exposed the lack of an institution to address economic crises in the region. Since the Asian Crisis, APT finance ministers agreed to the Chiang Mai initiative to coordinate reform of international finance. As Wendy Dobson observed, the thirteen countries have a long-term vision of not only trade liberalization, but further economic integration through enhanced financial and monetary co-operation as well as the potential for some sort of common currency arrangement.

Although economic integration and co-operation in Asia are enjoying considerable momentum, the Subcommittee heard evidence in Japan and Malaysia that a pan-Asian free trade agreement is an unlikely proposition in the foreseeable future. A number of significant issues stand in the way of a comprehensive trade agreement. China would be opposed to recognition of Taiwan in such an agreement, while Japan would be reluctant to negotiate with China because of the effect such an agreement would have on agriculture trade in the region. In addition, Japan is concerned about a potential “hollowing out” of Japanese industry moving production to take advantage of China’s low-cost labour environment.

In addition to the APT initiative, ASEAN is fostering external links with Australia and New Zealand, and recently signed a Declaration on Closer Economic Partnership with the CER (Closer Economic Relations agreement between Australia and New Zealand) supporting increased co-operation in areas such as trade and investment, capacity building, and electronic commerce. Negotiations for a free trade agreement between ASEAN and CER are underway.

Similarly, ASEAN and India signed a Joint Statement on ASEAN–India Cooperation. In addition to addressing the promotion of peace and stability and general economic and development co-operation, the declaration expressed the long-term intention to adopt an India–ASEAN Regional Trade and Investment Area.

India is also active in economic co-operation in South Asia. The South Asia Preferential Trade Agreement (SAPTA) was signed in 1993 by seven countries²¹ with the aim of lowering tariff barriers in the region. Although progress has been modest, the ultimate objective is expansion of the terms of this pact.

Regional integration is also evident in the proliferation of bilateral trade agreements in Asia-Pacific. While not all are true free trade agreements, many countries within the region are actively negotiating or exploring closer economic ties with their neighbours. For example, Singapore recently concluded an Economic Partnership Agreement with Japan and signed free trade agreements with New Zealand in 2001, and with Australia in 2003. Similarly, Thailand has explored closer relations with South Korea, Australia, Japan, China, and India. In addition to its agreements with Singapore, New Zealand and Thailand, Australia has signed a trade and economic agreement with Japan and is now reaching out to Indonesia.

Bilateral trade agreements are also increasingly common in South Asia. There is a considerable network of free trade agreements and related, less comprehensive, treaties aimed at improving economic co-operation in the region. To name a few: India has signed trade agreements with Sri Lanka, the Maldives and Bangladesh and is examining a series of tariff concessions with Pakistan. Sri Lanka is also negotiating bilaterally with Pakistan and has an agreement in place with Nepal.