The economic, political, strategic and cultural dynamism in Southeast Asia has gained added relevance in recent years with the spectacular rise of giant economies in East and South Asia. This has drawn greater attention to the region and to the enhanced role it now plays in international relations and global economics.

The sustained effort made by Southeast Asian nations since 1967 towards a peaceful and gradual integration of their economies has had indubitable success, and perhaps as a consequence of this, most of these countries are undergoing deep political and social changes domestically and are constructing innovative solutions to meet new international challenges. Big Power tensions continue to be played out in the neighbourhood despite the tradition of neutrality exercised by the Association of Southeast Asian Nations (ASEAN).

The Trends in Southeast Asia series acts as a platform for serious analyses by selected authors who are experts in their fields. It is aimed at encouraging policy makers and scholars to contemplate the diversity and dynamism of this exciting region.

THE FTAAP AND APEC'S REGIONAL ECONOMIC INTEGRAT ION AGENDA

The Free Trade Area of the Asia-Pacific (FTAAP) is embedded as a central element in APEC's Regional Economic Integration (REI) agenda. APEC (Asia-Pacific Economic Cooperation) was instructed in 2010 to “take concrete steps toward realization of an FTAAP” by APEC Economic Leaders, who endorsed the FTAAP as a “major instrument to further APEC's Regional Economic Integration (REI) agenda”, and laid out a vision in which the REI agenda is to create “a community … in which goods, services, and business people move seamlessly across and within borders, and a dynamic business environment is further enabled” (APEC 2010). In their 2012 statement, APEC leaders repeated their endorsement of the FTAAP as a “major instrument” for furthering APEC's REI agenda (APEC 2012), and reaffirmed in 2013 their “commitment to achieve a Free Trade Area of the Asia Pacific” (APEC 2013).

The APEC leaders’ commitment to an FTAAP has been repeatedly echoed by the APEC Business Advisory Council (ABAC), notably in their 2013 Report to APEC leaders, emphasizing that an FTAAP “will provide the best mechanism for sustaining regional economic integration” and recommending that the leaders “ensure that substantive progress continues to be made towards an FTAAP as a means for achieving regional economic integration and the Bogor goals of free and open trade and investment in the region” (ABAC 2013). Further recommendations aimed at accelerating progress toward an FTAAP were presented in the ABAC';s 2014 report to APEC leaders.

As is well known, the APEC leaders’ 2010 statement envisaged that an FTAAP would be pursued by “developing and building on ongoing regional undertakings, such as ASEAN+3, ASEAN+6, and the Trans-Pacific Partnership, among others”. The Regional Comprehensive Economic Partnership (RCEP), whose participants are identical to the “ASEAN+6” group, has superseded the earlier “ASEAN+3” and “ASEAN+6” concepts, so that the Trans-Pacific Partnership (TPP) and RCEP are now firmly established as what Petri, Plummer and Zhai (2012) call the “trans-Pacific track” and the “East Asian track”, respectively, toward an FTAAP.

Over five years of TPP negotiations concluded in October 2015. The RCEP has been under negotiation for almost three years. No formal discussions as to how these two initiatives could evolve into an FTAAP are yet known to have occurred.

INTRODUCTION

The Association of Southeast Asian Nations (ASEAN) adopted the Regional Comprehensive Economic Partnership (RCEP) framework at the 19th ASEAN summit in Bali in November 2011. The objective of the RCEP agreement is to consolidate ASEAN's respective “+1” Free Trade Agreements (FTAs) with Australia, China, India, Japan, South Korea, and New Zealand into a region-wide free trade arrangement that is consistent with the World Trade Organization (WTO).

The RCEP has embraced seven areas for negotiation: trade in goods, services, and investment; economic and technical cooperation; dispute settlement; intellectual property rights; and competition policy. This is a significant improvement over the existing “ASEAN Plus” FTAs, which have focused on the more traditional tenets of trade liberalization, i.e., increasing market access for goods, services, and investment. Furthermore, its Guiding Principles state that the partnership is open to “including other issues covered by FTAs among RCEP participating countries … in the course of negotiations”, and has an open accession clause to facilitate the participation of external economic partners. The broader economic ends of the RCEP are to widen its members’ participation in regional and global production networks and reduce transaction costs and inefficiencies created by multiple overlapping Asian trade agreements (Basu Das 2013a).

Although the RCEP negotiations were off to a good start since May 2013, it is evident that the negotiation process is going to face several economic and political obstacles. As an economic integration arrangement predominantly among developing countries, the RCEP is the first of its kind and has no predecessor to emulate. It involves three different dynamics, both among and between its sixteen participating members: (i) the ten ASEAN members; (ii) ASEAN and its FTA partners; and (iii) the six FTA partners. The ten members of ASEAN have pledged to work on economic integration since the 1990s and the ASEAN member countries have been working with their FTA partners since 2000. However, the six FTA partners do not all have existing comprehensive trade agreements with one another (see Table 7.1).

Moreover, political factors such as historical conflicts and unsettled territorial disputes will continue to underline the difficulties of negotiations among, for example, the three North-eastern states. In addition, although India has been viewed as a rising economic power, its position in multiparty trade negotiations remains rather conservative. It has been branded a hardliner with a “defensive strategy” (Ramdasi 2010).

Masahiro Kawai, Professor at the Graduate School of Public Policy, University of Tokyo and Sanchita Basu Das, Fellow at ISEAS–Yusof Ishak Institute, have brought together a valuable collection of short papers written by leading thinkers on the subject of regional economic cooperation. I congratulate all the authors and editors for their contribution to the current debate on the Asia-Pacific regionalism.

Regional Trade Agreements (RTAs) have been proliferating in the Asian region in the post-Cold War period, especially after multilateral trade talks led by the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation (APEC) stalled. These RTAs are seen as alternative paths for trade liberalization and cooperation. Southeast Asia countries are strong proponents of this approach. Pushing first for the ASEAN Free Trade Area, and more recently the ASEAN Economic Community, individual ASEAN member countries are also pursing separate Free Trade Agreements (FTAs) among “like-minded” partners across Asia and the Pacific-Rim nations.

Against this backdrop of a growing number of economic cooperation arrangements, governments started to explore options for a consolidated and coherent Asia-Pacific trading architecture. This has led to the development of two mega-regionals, namely the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), the former spearheaded by the United States, and the latter by ASEAN. Meanwhile, a Free Trade Area of the Asia-Pacific (FTAAP), first discussed in APEC meetings in 2004, has been revitalized after China restarted the discussion again in 2014 at the APEC Leaders’ Meeting that year.

This book volume is a timely contribution to the on-going deliberations on the Asia-Pacific regional cooperation. It provides analytical discussions at four levels. First, the publication discusses in detail the two mega-regionals, the TPP and the RCEP, that are ongoing at this moment. Second, it examines the feasibility of the ASEAN Economic Community and the China–Japan–Korea Trilateral Agreement serving as building blocks for the more comprehensive agreements in Asia. Third, it sheds light on the other regionals, like the Asia-Pacific Economic Cooperation (APEC), the Transatlantic Trade and Investment Partnership (TTIP) and the Pacific Alliance (PA), and examines their potential for linking the Pacific and Asia. Lastly, the publication examines the possibility for a FTAAP and its implications for the WTO.

INTRODUCTION

Northeast Asia is an active region that forms one important pillar of the world economy. Considering the cumulative effect of the population and global trade volume of each economy, the region has the potential to create one of the largest economic blocs in the world, on par with the European Union (EU) and North American Free Trade Agreement (NAFTA). The financial and debt crisis derived from the United States and the EU during 2008–12 has increased the importance of further regional economic cooperation in the region. In order to achieve greater and more effective regional cooperation, China, Japan, and South Korea — the key players in the Northeast Asian region — should continue their efforts to find areas where the countries share common economic objectives and look for concrete measures to pursue them.

One viable option to spur economic cooperation among the three countries is to pursue a Free Trade Agreement (FTA). Heeding the broad consensus on the need of a China–Japan–Korea FTA (CJK FTA), the governments of the three countries recently launched the negotiations for a CJK FTA in November 2012. This was an achievement after nearly ten years of in-depth research on the needs and possible impacts of a CJK FTA on each country. However, the possibility of concluding a high standard CJK FTA seems dim as competition between major industries among the three countries is intensifying (Jeong and Bang 2011). Nevertheless, the intensified production network of Northeast Asia, labelled as “Factory Asia” (Baldwin and Kawai 2013; Baldwin 2008), the increased overlapping FTAs in East Asia, the potential of Northeast Asia to evolve into a “Global Mall” (Helble and Ngiang 2014), and the recent trend of pursuing mega-FTA blocs by advanced countries all support the argument that a CJK FTA is a viable option to enrich the region as a whole. The important considerations here are to what extent the region should liberalize and through which path the negotiations should take.

LITERATURE REVIEW

Many studies have examined the necessity of a CJK FTA. By assessing the economic impacts of a CJK FTA via a computable general equilibrium (CGE) model, the Trilateral Joint Research project concluded that a CJK FTA “will be a win-win-win strategy bringing about benefits to all members” (DRC, NIRA and KIEP 2008, p. 3).

INTRODUCTION

As Figure 5.1 illustrates, only Japan thus far has participated in all of the regional economic integration schemes in East Asia and the Pacific: an FTA among China, Japan, and South Korea (hereafter CJK FTA), the Regional Comprehensive Economic Partnership (RCEP) comprising the ten countries of the Association of Southeast Asian Nations (ASEAN) and six of its FTA partners, and the U.S.-led Trans-Pacific Partnership (TPP). Japan has also been engaged in FTA negotiations with the EU, which has also progressed FTA negotiations with the United States, named the Transatlantic Trade and Investment Partnership (TTIP). If all of these agreements were concluded, the coverage ratio of Japan's overall trade by regional integration partners, including the EU, would increase from approximately 20 to 85 per cent, possibly making Japan one of the most advanced FTA countries in the region and presenting a “golden opportunity” for the Japanese economy.

This chapter aims to explore Japan's approach in the era of regional integration entanglement and attribute it to its strong interest in assisting Japanese corporations by making use of various benefits the TPP, RCEP, and CJK FTA would offer to Japan. Additionally, this chapter will identify what Japan hopes to achieve in each regional integration framework. Japan's differing interests in the three frameworks can be summarized as follows: TPP is likely to help the country in more advanced economic rule-making that includes cutting-edge agendas, such as the regulations of state-owned enterprises (SOEs), while strengthening the relations with its ally, the United States; RCEP is expected to increase market expansion, which encompasses big emerging economies, like China, India, and Indonesia; and finally, the CJK FTA framework is likely to promote investment protection in China and is also expected to function as a confidence-building mechanism at times when Japan's political relations with its two neighbours come under strain. Regional stability is a prime condition for sound business operations and investment, and this is especially true with China–Japan relations, as expressed by Sadayuki Sakakibara, Chairman of Nippon Keidanren, in his meeting with Wang Yang, China's Vice Premier in Beijing in September 2014. The chapter finally focuses on Japan's domestic politics and argues that the recent development of Japan's agricultural reforms under the Abe administration is expected to accelerate its fuller commitment towards regional integration negotiations.

INTRODUCTION

The 2014 public debates and protests on the Trans-Pacific Partnership Agreement (TPP) are unique in Malaysian history. They are unique for at least three reasons. First, little was known about the actual content of the proposed agreements because the TPP negotiations have been shrouded in secrecy. Second, there was significant opposition against the TPP outside the government. Third, various parties that often take opposite sides on many economic and political issues were united in objecting to the TPP.

These developments have put the Malaysian government on the defensive. This leads to the question of why the Malaysian government is so committed to signing the TPP despite its lack of popularity amongst various quarters in Malaysian society. Are there potential economic benefits that accrue from the TPP that are not apparent to parties opposed to the TPP? Who are the winners and losers from the TPP?

In this chapter, an attempt is made to provide an understanding of some possible reasons underlying the Malaysian government's intention to sign the TPP. It explores the economic and political factors underlying the government's decision as well as the objections coming from outside the government.

The structure of the chapter is as follows. Section 2 provides some basic facts on Malaysia's participation in the TPP. This is followed by a discussion on how the TPP fits into Malaysia's economic strategy in Section 3. The economic benefits from joining TPP are discussed in Section 4, while its cost and distributive effects are covered in Section 5. The political economy of the TPP is discussed in Section 6. Section 7 concludes.

MALAYSIA'S PARTICIPATION IN TPP — SOME BASIC FACTS

Malaysia's interest in the TPP is related to the failure to conclude a Free Trade Agreement (FTA) between Malaysia and the United States. Malaysia started negotiating the Malaysia–United States FTA in March 2006. A key reason for Malaysia's interest in the FTA was to reverse the decline in the share of Malaysia–United States trade and Foreign Direct Investment (FDI) — a trend that continues until today.

INTRODUCTION

In the past decades, the Association of Southeast Asian Nations (ASEAN) has evolved rapidly to become one of the key emerging regional institutions in the world. As one of its key agendas, ASEAN has promoted progressive regional integration alongside the reduction of the intra-regional development gap. The process of ASEAN integration has been wide-ranging and inclusive, leading to significant benefits to members, even the less-developed ones such as Cambodia, Lao PDR, Myanmar, and Vietnam (CLMV). Although the “CLMV growth story is one ASEAN success story with lessons … on the potential benefits of economic integration” (ERIA 2014), maintaining the momentum for further improvement is essential.

The idea of the Regional Comprehensive Economic Partnership (RCEP) is not new. The initiative actually represents a continuation of the “Concentric Circle Strategy”, which gradually builds on ASEAN integration in the form of the ASEAN Economic Community (AEC) to be created by 2015 and ASEAN-plus integration with “ASEAN centrality”. The RCEP was initiated by ASEAN itself in 2011 with the Association's Framework for RCEP. In 2012, leaders of all sixteen economies — including ASEAN members, China, Japan, Korea, Australia, New Zealand, and India — supported and agreed to launch the RCEP negotiations. Fundamentally, the RCEP resembles the various efforts around the region for broader regional integration, such as the East Asian Free Trade Area (EAFTA) initiative by China and the Comprehensive Economic Partnership in East Asia (CEPEA) proposal by Japan.

Since the RCEP originates from ASEAN's aspirations, a couple of natural questions arise. The first is whether the RCEP arrangement can be really effective for sustaining growth and narrowing the development gap in the CLMV countries. The second question is whether the RCEP can benefit from the AEC framework. In answering these questions, one may need to start by identifying their possible impacts on these member economies. Complications introduced by the new context of Asia-Pacific integration — i.e., the ongoing Trans-Pacific Partnership (TPP) negotiations — should also be considered carefully even though not all the CLMV countries participate directly in the process. These questions and issues constitute the main analytical focus of this chapter.

The remainder of the chapter is structured as follows. Section 2 summarizes the main possible impacts of the RCEP on the CLMV countries.

IN THE BEGINNING…

The Trans-Pacific Partnership (TPP) trade negotiations began life as a different trade agreement. Now known as the P4 or “Pacific Four”, the official name of the agreement, announced at the APEC (Asia-Pacific Economic Cooperation) Trade Ministers meeting in June 2005, was the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) (Lim, Elms, and Low 2012). The P4 linked together Brunei Darussalam, Chile, New Zealand, and Singapore. It grew out of attempts within APEC to create a larger economic free trade area. When these talks foundered, the leaders of the P4 countries pressed ahead with plans to demonstrate how small, largely open economies could still benefit from trade liberalization. However, given the quite modest levels of trade between the four, the P4 came into force in 2006 with very little attention (Elms and Lim 2012).

The original P4 negotiations closed without resolution on two difficult areas of negotiation — financial services and investment. The four country leaders elected to finish the agreement and then relaunch discussions on these outstanding issues within two years.

When the negotiations started in February 2008 over the two missing chapters, the United States also began to participate in the discussions (Business Day 2008). In September 2008, U.S. participation deepened with the announcement that the United States would seek to join the agreement in its entirety. When this happened, the P4 moved from a small experiment into something larger and much more interesting. Australia, Peru, and Vietnam also joined the talks. In 2008, the P4 agreement had morphed into the TPP with eight members.

The United States’ involvement with the P4 was an important decision given its relatively low number of trade deals. The United States opted to join the agreement in the twilight days of the George W. Bush administration. The U.S. announcement was made in September 2008, with the elections looming in November.

To make such a pronouncement ahead of a tight election might seem especially odd. At a minimum, it could have been argued that the decision could be easily postponed until after the election so the new administration could decide whether or not they wished to be involved in the trade arrangement. Instead, United States Trade Representative (USTR) Susan Schwab chose to ensure U.S. participation regardless of which party won control of the government.

INTRODUCTION

In the last five years, the mega-regional trade agreements of the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP) have caught the fancy of many countries across the Asia-Pacific region. In addition, the Transatlantic Trade and Investment Partnership (TTIP) is also being negotiated and the Pacific Alliance (PA) is being formed, in order to align their participating members with the forces of globalization and hence benefit from the Asia-Pacific's emerging regional agreements.

While the prognosis on these mega-regional deals is unclear at this juncture, it is certain that they will shape the global trade architecture of the twenty-first century — particularly the RCEP and the TPP — because of their sheer size and scope, covering issues that go beyond trade liberalization. However, it has been and will be difficult to first conclude the negotiations and thereafter to implement these mega-regionals as they are bound to face complex challenges. Though the broad text of the TPP has been agreed by the twelve member nations, its full ratification is expected to take sometime. The RCEP process has been slow since the beginning of its journey in May 2013, and missed the deadline of end 2015, as promised earlier.

This overview chapter looks at the literature on Regional Trade Agreements (RTAs), followed by a discussion on the role of RCEP and TPP, covering both economic and strategic aspects, in the bigger geography of the Asia-Pacific region. The chapter, thereafter, provides a short narrative of what is to be expected from the rest of the book. In the final section, it pulls strands from the subsequent chapters to give a flavour of where the future of the global trade environment could be headed.

LITERATURE REVIEW

The post-Cold War proliferation of Free Trade Agreements (FTAs) — a form of new regionalism — has gained prominence as countries struggle to balance the challenge of globalization against domestic interests. The General Agreement on Tariffs and Trade (GATT) received 123 RTA notifications from 1948 to 1994, while the World Trade Organization (WTO) has received notifications for over 300 additional arrangements covering trade in goods and/or services since its inception in 1995.