76 - Managing Integration in East Asia: Behind Border Issues in Japan-ASEAN Trade Agreements

Summary

REGIONALISM IN EAST ASIA

From Market-Driven Integration to Governance

In the 1990s, virtually only ASEAN countries made an effort to create a free trade area in East Asia and to harmonize limited aspects of economic policies, such as investment and services. The lack of a formal regional arrangement was due to a combination of factors, ranging from a lack of vision to then sufficient unilateral actions, a lack of importance given to intra-regional economic relations by regional governments, and external pressure — mainly from the United States. It is interesting to note that before the new millennium, Japan did not have a single treaty for investment protection — such treaties normally take the form of a bilateral investment treaty — with an East Asian country, while it had established intensive trade and investment relations for decades.

Regionalism in East Asia entered a new phase when China announced its intention to have an FTA with ASEAN, which was implemented in 2003. Partly because of the domino effect and fear of trade diversions, other countries in the region — including Japan — started to embrace regionalism. This opened up an opportunity for Japan to address some problems related to market-driven integration with its counterparts. Economic and trade relations between Japan and other countries in the region have grown so extensive that they require a more harmonized international regulatory framework. Japan came up with a strategy of building comprehensive economic partnerships with ASEAN countries that went beyond traditional trade liberalization.

This was done by including various provisions and commitments on behind-border issues in an agreement between ASEAN member countries and Japan — the ASEAN-Japan Economic Partnership Agreement. Those BBIs’ (behind-border issues) provisions set international rules for various economic matters normally determined domestically. The agreement provides cross-border governance for trade, investment, and production relations between Japan and ASEAN countries. This move was followed by other countries in East Asia, including South Korea and Australia.

BEHIND-BORDER ISSUES: AN OVERVIEW

Disciplining Integration: Importance of Behind-Border Issues in East Asia

A firm's objective in opening production bases and sourcing intermediate inputs overseas is to take advantage of geographical differences in price of production. While this strategy offers many advantages, it also brings up problems that do not exist with more conventional production activities.