East Asian Economic Integration: Implications for a U.S.-Korea FTA

1. East Asian Economic Integration: Implications for a U.S.-Korea FTA Inkyo Cheong Department of Economics Inha University

2. Backgrounds for Recent Developments in East Asian Regionalism Growing interest on FTAs in East Asia • World-wide proliferation of trading blocs • East Asian financial crisis • Regular meetings of political leaders, such as ASEAN plus China, Japan and Korea

3. Current Progress of Regionalism in East Asia • Early stage of economic integration (1950s in Europe) • Gradual improvement (EAVG, EASG, EAS, EA Community, etc) • Currently many bilateral FTAs under progress • Learning-by-doing, and internal preparation for regionalism • Hub-spoke problem, Spaghetti effects

4. Why Stagnation in East Asian Regionalism? • High trade dependency on the US • Different political systems • Historical factors • Lack of initiating country

5. Stagnation in East Asian Regionalism (II) • Except for Japan, developing countries in East Asia had similar export and industry structure - Intra-regional market was not large and expansion of intra-regional trade was unlikely and • Expanding exports to lucrative non-Asian markets like the US seems like the shortcut to economic growth • Political factors also negatively affected (e.g. wars and ideological conflicts)

6. Prospects for East Asian Regionalism • Many obstacles: economic, political, historical • However, most EA countries are supportive of EA economic integration • Two FTAs (Japan-Korea, China-ASEAN) seem to lead regionalism in EA • Competitive regionalism may produce stronger momentum for EA regionalism

7. Assertion on EA Regionalism by R.E. Baldwin (2004) • EA regionalism will shift from talk to action, when one major FTA gets signed • A Japan-Korea FTA will be a trigger in EA • EA is evolving towards the realization of the ‘Domino Effects’ • In that case, EA will emerge as one of three trading blocs in the world

8. Issues Surrounding EA Regionalism • Open regionalism? Why open regionalism in EA only? Without preferential treatment for members, no progress in regionalism • Is APEC an alternative option? APEC is still alive, but annual regular event for ‘talk shop’ • China’s economic emergence and active promotion of FTAs. EA countries observe growing trade dependence on China. China risk may arise.

9. Implications for the US • EA countries will develop stronger intra-regional economic relations as EA regionalism develops • The US has limitations in opposing the development of regionalism in EA • Economic and non-economic losses for the US • For minimizing losses from the exclusion, the US needs FTAs with some of EA countries

10. A US-Korea FTA • Mutually beneficial to both countries • Strategic importance – Korea’s geo-political, military position in EA • Korea’s active promotion for FTAs without plan for a FTA with the US, which is most important for Korea in economic and non-economic aspects • Recently, the US shows some concern • Two pre-conditions: agriculture, screen quota

11. Conclusion • The US and Korea should have eyes on overall gains of a bilateral FTA, rather than sticking to specific issues • Timing is a critical factor for FTA policies • Korea should be more active in responding to the concern by the US • A US-Korea FTA should be officially discussed by both governments

12. Thank You for Listening