Sometime ago, China, Japan and Korea finally agreed to
kick-start talks that would lead to a Free Trade Agreement (FTA) between them.
This move brings about two contrasting views. For the optimists, it shows that
the 3 countries are finally ready to put behind their historical enmity in the
name of economic growth. For the pessimists, particularly those that believe in
ASEAN centrality, it is the beginning of the end of ASEAN’s role in providing
neutral ground for the 3 countries to negotiate and engage one another,
especially if bilateral communications on some matters are close to impossible.
On the economic front, the pessimists fear that the expanded
market size of this FTA would reduce ASEAN’s competitiveness when it comes into
being. I would like to argue the opposite. China is such a huge market that it
does not really need to add Japan and Korea’s population to its investment
attraction strategies in order to attract more investments. In other words,
firms that find China as a prospective investment location would not have
waited until now before making their moves. They would have done so long time
ago. There is certainly a value for Japan and Korea use the expanded market
size to attract more investments but given the high labor costs in both countries,
I doubt expanded market size is a strong pull factor by itself.
Then, there are those who said that ASEAN may be left out of
the East Asian fortress since the FTA does not involve them. But this is an
unlikely event since ASEAN has arguably pre-empt this by having FTA with each
of them. I will also argue that the regional production networks that have been
developed and nurtured over the years is not something that can be altered
overnight, more so if there is no basis to do so at all.
Last but not least, the talk is only about to start and most
definitely has not yielded anything tangible. For all the commotion, it may end
up being another FTA that is trade-light and more driven by politics rather
than economics.
.JPG)
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