Workshop premises

        A large feature of what we conceive as East Asia (the ASEAN 10, China, South Korea, Japan, Taiwan, and Hong Kong) is the economic disparities among these nations that largely originated in the differences in periods which they started economic development and modern industrialization. Asian nations responded well to globalization from the late 1980s and into the 1990s, but plunged into a very severe economic stagnation due to the currency and financial crises of 1997 and 1998. In order to recover from this, these countries are now frantically trying to align their economies with globalization. With such a premise for the East Asian region, our project aimed to study the following three points, and came up with the Core Research Group's report:

How the East Asian nations tackle globalization: What kinds of problems do these nations have, and to what extent have they succeeded in globalizing their economies?

Trends in East Asian regional cooperation and integration

Roadmap for an East Asian economic zone: How can inpidual economic systems combine and develop into a common system? What kind of new East Asian economic system would that become?

        In this workshop, the contents of our proposal were presented and discussed in three separate sessions.

  During the currency crisis, situations turned serious for the ASEAN nations when their currencies were devaluated against the U.S. dollar. However, their situations started to improve rapidly in 1999. The extent of each ASEAN member nation's globalization, in terms of response and results, differs even among the original members. In any case, an ASEAN Free Trade Area (AFTA), an ASEAN-wide pision of labor, is expected to materialize plans for a common effective preferential tariff scheme that progressed in 2003. An important issue for the regional association is the strengthening of its competitiveness, so as to effectively implement a pision of labor with China, which has a strong industrial competitiveness.
        There are large economic issues that need to be jointly worked on by Japan and ASEAN nations, such as preventing a recurrence of the currency crisis. For instance, the Chiang Mai Initiative and the creation of the ASEAN bond market, both of which are supported by the Japanese government, are intended to prevent a recurrence of the currency crisis, and to aim for sustainable development. It is also necessary to improve investment environments in the ten ASEAN members, as well as to extend intellectual support to each of these nations. It is important to envision the future of an East Asian economic zone and its future by steadily increasing income and correcting the gaps among the region's members.

  Japan has been experiencing a long period of stagnation, but it is reported that the nation's economic situations is gradually improving. While the Japanese government's reform agenda is very much behind schedule, private companies have made progress in their internationalization from about 1997 and 1998, resulting in a rise of share prices induced largely by corporate efforts. Japanese companies have transformed their corporate cultures so that they can produce profits even if sales do not increase. However, it is necessary to improve corporate culture in the fields that still lag behind. Structural reform is especially important, and one can expect the special zones for structural reform and regional reform to ignite the economy. Other important reforms include those in agriculture, which is expected to become an issue in the East Asian FTA negotiations, as well as a rising shift of Japanese corporate operations to overseas, and the need to increase direct foreign investment in Japan.

  South Korea has experienced an unexpectedly large setback in its economy due to the currency crisis. The shock and impact prompted the nation to carry out drastic structural reforms under the new Kim Dae-Jung administration, in which reforms of conglomerates and other corporate reforms progressed. The nation worked on other dramatic reform measures, such as the strengthening of financial organizations, reorganization of government-affiliated banks, writing off non-performing loans, and the creation of new financial supervising mechanisms for more effective and transparent bank management. Partly due to these measures, South Korea's macroeconomic indicators rapidly recovered.
        The new Roh Moo-hyun administration which was launched last year set major goals, such as creating a more "Popular-participation" type of government and making South Korea the business hub of Northeast Asia. However, the administration has faced serious economic problems since the first half of 2003. The South Korean economy is worsening, making the political situations very unstable, as labor unions have gone on strike, and resistance to structural reforms has surfaced.

The observation of Professor Kinoshita over the ASEAN economic situation hit the mark, and his evaluation is correct. The number of "losers" has been increasing since the 1997 currency crisis.

In terms of East Asian regionalism, many mid- and small-sized developing nations are likely to actively pursue FTAs, which are convenient and can be concluded in short periods of time, as the World Trade Organization, a multilateral trade negotiation space, has been degenerated by North-South conflict, and there are difficult problems in agricultural negotiations and multilateral investment agreements.

Scholars in the ASEAN region expect that the ASEAN+3 framework will be launched on an enormous scale. Indeed, ASEAN-Plus-Three is expected to become an important area for trade and investment, but it has its own problems, such as the low percentage of trade within ASEAN itself, the large number of exempted items in AFTA, and the issues of the least developed countries (CLMV or Cambodia, Laos, Myanmar, and Vietnam).

China's active efforts to forge an FTA with ASEAN members should be taken as a good sign. South Korea, on the other hand, does not seem to be active in seeking similar ties with ASEAN.

In terms of Asian regional integration, competition rather than cooperation, problems rather than opportunities, and political issues rather than economic interests, have gained primacy recently, compared to the period which immediately followed the currency crisis.

Japan needs to strengthen its role as a regional leader in the near future. However, Japan has become inward-looking, inviting a long period of economic stagnation upon itself, and as a consequence, it has lost its attractiveness for capital and financial markets. Whether Japan is able to give rise to a Japan-led Asian regionalism or not will determine the possibility of the yen replacing the dollar and functioning as a regional currency.

In South Korea, President Roh Moo-hyun has proposed that Japan and South Korea enter an FTA by 2005. However, South Korea has many issues which its leaders should overcome before it can forge an FTA with Japan. South Koreans are expecting the government and business world to supplement the leadership. The Korean economy has recovered from the financial crisis, and the government has implemented full-scale economic reforms in the formal system; however, the informal sector remains the same as before. The issue for South Korea in the near future is how to narrow this gap.

Another factor in the lack of financial stability and economic crisis in Asia in the past was the lack of a regional mechanism like NAFTA in the West.

There emerged groups of winners and losers after the economic crisis among the ASEAN nations. Most losers experienced difficulties in economic cooperation with other nations, while winners succeeded largely because they strengthened economic cooperation with other nations.

A major reason for Japan's inability to implement reforms, although it recognizes that it cannot grow economically without such reforms, is that the nation concentrates on domestic reforms only, and not on its economic cooperation with other countries. I think that Japan can rapidly implement economic reforms if it pays more attention to FTAs and economic cooperation with other nations, thereby increasing its room to maneuver and in turn making implementation of economic reform easier. The reason that Japan has the difficulty concluding an FTA with South Korea probably originates in Japan's problem, for example, with regard to agricultural issues. Unless Japan manages these issues well, it will not be able to cooperate well economically with foreign countries. If Japanese economic cooperation with other nations does not go well, then the Japanese economy might be adversely affected.

In order to promote cooperation within East Asia: 1) Remove factors contributing to political instability in ASEAN and other East Asian nations, which emerged after the currency crisis, in order to restore political stability; and, 2) Japan and China, the two major powers in the region, should take active leadership.

We must emphasize that Japan should promote agricultural reform in order for Japan to promote cooperation with other East Asian nations, and for Japan to be able to continue its economic growth in the midst of globalization. If Japan cannot solve the agricultural problem, it can neither cooperate with other East Asian countries, nor grow economically in the global context.

Does China approach ASEAN nations with the FTAs proposal in order to convince them that it is not a threat? Does Japan truly consider FTAs and regionalism as necessities? Or is it the case that Japan is being forced to join the trend and is being passively incorporated?

As in the case of Europe, the fluctuation of the amount of direct investment holds the key in Asia. In this regard, the general gap in labor costs in the region is too wide. Therefore, it would be effective to revaluate the Chinese Yuan.

The linkage between domestic reform and liberalization of trade is important. It appears that Japan should strengthen the linkage between its domestic reform and regional integration of trade, as well as trade with ASEAN-Plus-Three, in order for Japan to be capable of assuming leadership in the future. Or does Japan seek, as in previous years, arrangements with inpidual ASEAN member nations?

Each East Asian nation has started to recover from the currency crisis. Today, there are multi-level proposals in East Asia for bilateral FTAs, nation-to-region, and multilateral economic cooperation, in order to establish a community in East Asia, We now have this historic current in the region, which we must evaluate and foster further.

Any FTA that Japan concludes must comply with Article 24 of the General Agreement on Tariffs and Trade (GATT), causing in part delays in Japanese FTA negotiations with other nations. Japan's basic position is that the entire world should maintain the WTO/GATT system.

There are two possible reasons for the difficulties in implementing Japanese structural reforms: First, the Japanese people lack a sense of crisis in regards to structural reform, and second, East Asian nations have different political systems, and when they face the political instability, they cannot make a room to undertake difficult negotiations, such as those related to agricultural issues. The major reason for the difficulty in Japanese agricultural reform is that many politicians wish to gain votes in rural areas. As a democratic nation, we should consider the importance of communicating our message well to the people in rural Japan.

        We have stepped into the direction of regionalism in the past several years, but Thailand does not opt for wide-ranging regionalism. Since the beginning of this year, however, it is considering a more active promotion of regionalism as a safeguard. The Thai government does not consider it necessary for the nation to fully adhere to Article 24 of GATT. For example, the Thai government is considering exempting several agricultural items from its FTA with Japan.

My point is this: economic cooperation and regionalism, (or the East Asian Community) all pertain to the economy, but these cannot be achieved purely with economic approaches only. Leadership and political consensus are also necessary, and from historical as well as political perspectives, mutual trust is necessary.

I am not pessimistic about the future of South Korean society in the long-term perspective, judging from the current state of the society. Presently, South Korea is in search of models for a new South Korea, and is looking for a new system in its transition from the Cold War period to the post-Cold War era. It is searching for a bridge for the new and young generation, evolving from its former authoritarian model to a "softer" one.

Start with experiments, as in the Chinese special economic zone. If experiments are successful, spread them.

Vested interests must be absolutely protected. Even if one fights them, one does not even have a chance to win. It would be an example of so-called economic rationality for people to be meticulous about vested interests, so and therefore to criticize adherence to such interests will not solve the problem. But at the same time, no progress will be made if vested interests are simply protected.

Put your resources into the growth of new systems, rather than the reform of old systems.

It is important for the Japanese economy to internationalize. If, however, Japanese companies are only concerned with setting up operations overseas, it would only cause the hollowing-out of industries. Therefore, it is also important for Japan to encourage foreign investment in the nation.

In terms of Japanese enthusiasm about FTAs: We would like to thank China for this point. Because Japan is an inward-looking nation, it had not previously taken the initiative. But many Japanese people started to wonder if inaction can be afforded, and began considering implementation of FTAs, after China made a bold FTA proposal to ASEAN.

Japanese leadership: Japan is likely to adopt a Japanese-style initiative, rather than to use the American model of "We will lead, and you will follow." I am of the opinion that Japan does not need to assume an American model of leadership.

Whether FTA can be successfully implemented without domestic reforms: I think Japan's approach would be that trade and other "real" sectors will move first, and domestic reform will follow with a certain time lag. If we wait for the results of domestic reforms, FTAs will not be successful.

Agricultural issues: Agricultural reform is about the issues of political reform and choice.

Internationalization of the yen: I agree that the Japanese currency should be internationalized, but it will take some time.

WTO and FTA: Japan will have no future unless it promotes both of these processes

        Panelists and the keynote speaker agree on the following two points

An East Asian economic zone should be formed.

Such a zone would not materialize any time soon unless Japan implements its reforms wisely and rapidly.

        Japan has many issues on which it needs to work, but I believe that Japan will proceed step by step. Things would not move rapidly if everything is carried out by consensus, so it may become necessary to use the prime-mover method, in which positive items are experimentally implemented one after another. I have special expectations for structural special zones proposed in local reforms.