Why is it imperative to form an Asian Economic Community?

Case for Pan-Asian Economic Integration

The decade of 1990s witnessed a strong trend in different parts of the world, especially the developed countries, to form regional trading blocs such as EU and NAFTA. The formation of these trade blocs had been prompted by the anticipated increased emphasis on competitiveness with the conclusion of Uruguay Round negotiations that were underway and have since led to the formation of the World Trading Organisation (WTO). An immediate effect of these regional integration agreements (RIAs) has been the rising proportion of the world trade that is conducted within the trading blocs. Over 60 per cent of all EU exports in 1996 had been destined to other EU member states. The proportion applicable to NAFTA is 47 per cent. The intra-regional trade within these RIAs has been rising much faster than the extra-regional trade of the member countries. Nearly 60 per cent of European FDI flows are also absorbed within the Single Market or in the candidate countries.

Thus, the trading blocs in Europe and North America have led to a substantial diversion of trade and investment and, have become an important factor in shaping the patterns of location of production and competitive advantage. Given their weight in the world economy and the world trade that EU and NAFTA enjoy, this diversion of trade and investment away from the rest of the world economy in favour of intra-regional trade has adversely affected the growth process in other regions that are not part of these blocs. The Asian countries, on the other hand, have pursued multilateralism in their trade and investment policy throughout except for subregional attempts at economic cooperation such as the ASEAN Free Trade Area (AFTA), or the recently signed South Asia Free Trade Agreement (SAFTA). There is now growing recognition in Asia of the importance of regional economic integration for generating growth impulses from within, especially in the wake of the East Asian crisis. Voices emanating from different parts of the region in support of pan-Asian cooperation and integration are ample proof of the growing recognition of the importance of Asian economic integration. At the initiative of Prime Minister Dr Thaksin Shinawatra of Thailand, the Asian Cooperation Dialogue (ACD) was launched on June 18-19,2002, at Cha-Am, Thailand. Similarly, the Chinese President Jiang Zemin launched the Boao Forum for Asia in 2001 at Boao, in Hainan province of China, as a pan-Asian economic forum. The East Asia Vision Group (EAVG) has proposed formation of an East Asian Economic Community.

Against that backdrop, there is a strong case for an Asian Economic Community (AEC) that would be broader in coverage than the current programmes for economic cooperation in regions such as East Asia, South Asia and Central Asia. Such a grouping would facilitate fuller exploitation of the region’s considerable resources – material as well as human – for expediting the process of its development