Regionalization in East Asia

Abstract

Institutional regionalization has come very late to East Asia compared with Europe, but its pace has dramatically increased since the mid-1990s. Many agreements, including bilateral ones such as those signed between Japan and Singapore, or pluri-lateral ones such as those between ASEAN countries, cover an ever increasing number of countries of the East Asian region, including Japan, India, and China. We first analyze Asian integration as a de facto, spontaneous, development of trade. Trade specialization in Asia has often been described as guided by the different levels of development of the countries participating in the regional integration. It constitutes a vertical division of labor between poor countries exporting natural resources and/or labor-intensive products to developed countries exporting machinery, sophisticated parts and components, and high-tech products. This trade structure is radically different from the European horizontal division of labor (exchange of different varieties of similar goods). Then we look at the micro-economic level how Japanese firms tend to integrate Asia into their international network, with Japanese partners being used as relays for Japanese export of semi-manufactured products. Last we present a simulation with the MIRAGE model of a scenario of general regionalization in which all the regions of the world develop preferential treatment for neighboring countries. These agreements are limited to industrial products with particular attention to the automotive sector. The main results are that Asia is the main winner in such a scenario, and within Asia it is Japan and Korea that will be the main winners. In fact, because developing Asia is one of the most protected regions of the world, the impact of liberalization is also the highest. Second, Japan and Korea are best placed to profit from these regional agreements, because other developed countries are excluded from the market of developing Asia. They also have superiority in manufacturing goods whereas countries like China might have problems upscaling their industrial production. Nevertheless our model did not take into account the voluntary pace of development chosen by China and that she will use her powerful state system to avoid being locked into low-tech, low-value-added products.