Minister Lim Hng Kiang at the JETRO-SIIA Seminar “A New Stage for Asian Economic Integration

LUNCHEON ADDRESS BY MR LIM HNG KIANG, MINISTER FOR TRADE AND INDUSTRY, AT THE JETRO-SIIA SEMINAR “A NEW STAGE OF EAST ASIAN ECONOMIC INTEGRATION”, ON 26 JUNE 2006 1230-1400 HRS, AT FOUR SEASONS HOTEL

Mr Osamu Watanabe, Chairman and CEO, JETRO,

Distinguished guests,

Ladies and Gentlemen,

Introduction

It is my pleasure to join all of you this afternoon, at this seminar on “A New Stage for East Asian Economic Integration”. I understand that you’ve had a discussion at the Seminar this morning and I hope it had been a fruitful one. Please allow me to contribute my views on this topic.

Open Architecture

First, any economic integration architecture should be based on an open framework and must be inclusive in nature. An open framework, in which countries like India, Australia, and even the US have a role to play in East Asian integration, is best for the region.

Such an architecture would then be stable and predictable. It would play an important role in catalyzing cooperation and growth in the region, as a region. This would ensure too that small countries are not left out.

However, we should also be careful to ensure that while we seek greater economic integration, it does not lead to the rise of regional blocs within Asia itself. Closer cooperation within Asia is good, but we must not neglect our ties with rest of the world.

Therefore, regional groupings based on larger and more inclusive frameworks like the EAS - which includes India, Australia and New Zealand, or APEC - which includes also the US, would benefit the region most. It would be ideal if APEC could become the premier grouping in Asia. But with 21 members currently, APEC may be too large a grouping, and we should be pragmatic about what can be achieved.

We should therefore be cognizant of the fact that any strategic framework for the region must not be perceived as an exclusive regional grouping. Otherwise, there is a risk that other important players like the US and India may get the wrong signals that an exclusive regional grouping is forming in East Asia comprising only a few key players and others are not welcome to participate in it.This will not serve the region well.

ASEAN Integration

Second, in order to achieve true pan-Asian regional integration, the regional architecture adopted must involve ASEAN as an important component.

However, it is critical for ASEAN to achieve greater internal integration among its membership before it can seriously embark on wider integration efforts. Otherwise, the imposition of an overarching architecture would only add another layer of complexity and confusion. This could disrupt ASEAN’s own integration process, and in turn detract from the aim of greater Asian integration.

On the other hand, if ASEAN were to become a well-integrated community, it could play a vital role in fostering the success of the wider regional integration process. A McKinsey study undertaken in 2002 estimated that an economically integrated ASEAN could increase the region’s GDP by at least 10% and reduce the operational cost by up to 20%. This translates into an additional GDP of US$50 billion per year for the whole of ASEAN.

ASEAN should therefore press ahead with achieving better internal integration. We should consolidate existing economic cooperation, and accelerate the ASEAN Economic Community, or AEC. It is an end-goal of a single production base and a single market with free movement of goods, services and capital by the year 2020.We are already making progress, and are now aiming for more ambitious targets. Hence, we are looking at ways to bring forward the completion of current economic initiatives, perhaps to 2015.

Currently, ASEAN has concluded several agreements covering goods, services and investment. The ASEAN Free Trade Area (AFTA), ASEAN Framework Agreement on Services (AFAS) and the ASEAN Investment Area (AIA) were started some 10 years ago. We have had considerable achievements since then, but we should continue to work at greater goods and services liberalization, and facilitate the flow of investments and people.

At the same time, ASEAN as a group should remain focused on our ongoing ASEAN-plus FTAs. ASEAN’s FTAs with China, Japan, India, Korea and Australia/New Zealand are at various stages of completion. We should concentrate on our target to conclude negotiations by end 2007.These FTAs could then be fully implemented by 2010-2012.Such engagements lay a foundation, enabling us to foster stronger links with the other Asian economic powers and help ready all parties involved for greater integration ultimately.

Engagement of Key Strategic Partners

Third, we need the engagement of key strategic players in the region. Any proposed regional architecture must take this fact into account to be a realistic model.

The US will remain a key player in the region. Its presence has and will continue to provide stability to the region. It is also a key trading partner and investor for many countries here. For example, total trade between ASEAN and the US was almost US$130 billion in 2004.Japan and ASEAN are also the second and third largest export markets respectively (after the EU) for the US.

Regional groupings like ARF and APEC already involve the US. Others like the EAS do not include the US, but is a building block towards fostering regional and international cooperation. By stimulating pan-Asia cooperation, this would build the base for trans-Pacific cooperation, which would draw in the US and the rest of the international community.

In China, we have the emergence of an economic superpower that is no longer just "the world's factory", but is also increasing its political and economic influence over the region and the rest of the world. A report done by Goldman Sachs in 2003 predicted that China would replace the US to become the world’s largest economy by 2041, slightly more than a generation away.

The key for the region would be to ride on China's growth and prosper by working with it. China's efforts to engage ASEAN through the ASEAN-China FTA are a reflection of its own intentions for greater regional cooperation, and which is welcome by all in the region. Indeed, the Trade in Goods Agreement under the ACFTA was signed and implemented in July last year. This is of great significance as China was the first among ASEAN’s Dialogue Partners to have successfully concluded such an ASEAN-plus trade agreement.

Another key player whose role is increasingly important is India. Its economic reforms and mindset change is making it a key country the region must embrace. Economic growth has doubled from the “Hindu growth rate” of 3% in the 1970s, to more than 6% over the last 10 years. More recently, growth in India is on the trajectory of 7-9% pa. Foreign direct investment (FDI) into India has increased tremendously from US$0.1 billion in 1990, to reach US$5.5 billion in 2004.Even countries like Japan who have traditionally not shown interest in India have begun business missions and academic studies. Indeed, IE Singapore and JETRO have worked together to help Japanese businesses penetrate into India.

ASEAN’s total trade with India has also grown significantly in the past decade. Two-way trade between ASEAN and India has increased more than 5 times from US$3.5 billion in 1994 to US$17.7 billion in 2004. India will serve to complement China's growth and provide further fuel to the phenomenal economic development in the Asian region - all the more reason why East Asia must remain inclusive and engage more players in our quest for economic integration.

India too shares our vision, that a regional grouping which is inclusive in nature, would serve the region best. Last month, at the Annual General Meeting of the Asian Development Bank (ADB) in Hyderabad, Indian PM Manmohan Singh called for a pan-Asia FTA, citing it is as the “Future of Asia” which would open up new growth avenues for our economies.

What about Japan? Japan has always played a vital and leading role in Asia. It is a top investor in ASEAN and other Asian economies. Total Japanese investments in ASEAN alone totaled more than US$30 billion in 2004.Japan’s Closer Economic Partnership Agreement with ASEAN would also serve to further strengthen Japan’s regional linkages. Negotiations, which started in April last year, are expected to finish in April next year. As the 2nd largest economy in the world, and the biggest and most advanced economy in Asia, Japan will remain an important player, in both the global and regional arena. Japan's leadership in the deliberation process would be valuable to achieve Asian integration that would be open, inclusive and spur even greater growth in the region.

We must find a way to integrate all of these key strategic players into a regional framework that will benefit all of us. This should be based on cooperation and peaceful competition. Key strategic players should maintain stable relations, and only then a regional economic structure with sustainable peace and development could be achieved.

Conclusion

Greater economic integration in Asia would bring about promise of more prosperity and stability to the region. However, the architecture adopted for such integration must be the right one. It will also need several components for success. There are many challenges on the path to a successful East Asian Integration. But it is a goal that is worthy of pursuit and we should work together towards it.