Benefits or Regional and Economic Integration

Regional economic communities are formed because of the expected benefits from
them.
An important feature of the higher levels of integration is free trade among members.
Free trade is expected to lead to rapid expansion of trade among members, which in turn
is expected to lead to rapid economic growth. These gains result from the dynamic effects
of a CU, which have been shown to overshadow the static effects, viz., trade creation,
trade diversion and terms of trade effect. The dynamic effects, which are cumulative in
nature, lead to growth. Indeed, the dynamic effects of a CU are often described as the
long-run consequences for the economic growth of member countries as a consequence
of increased market size and exploitation of economies of scale, increased competition,
learning by doing, and increased investment, Cooper and Massell (1965), Iyoha (1977)
and Kreinin (1964). Iyoha (1977) has shown that the larger the CU, the more likely it is
to lead to growth since the larger the CU, the larger will be the market created. Also, the
stronger the potential economies of scale are, and the more rapid the autonomous
productivity advances, the more likely will the CU lead to growth. Thus, the contribution
of a CU (or regional integration in general) to economic growth will be greater if the
exploitation of scale economies, made possible by increased market size, takes place pari
passu with learning by doing.

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 Advantages Of Economic Integration

Trade Creation: Member countries have (a) wider

selection of goods and services not previously
available; (b) acquire goods and services at a lower
cost after trade barriers due to lowered tariffs or
removal of tariffs (c) encourage more trade between
member countries the balance of money spend from
cheaper goods and services, can be used to buy
more products and services

Greater Consensus: Unlike WTO with hugh

membership (147 countries), easier to gain
consensus amongst small memberships in regional
integration

Political Cooperation: A group of nation can have

significantly greater political influence than each
nation would have individually. This integration is an
essential strategy to address the effects of conflicts
and political instability that may affect the region.
Useful tool to handle the social and economic
challenges associated with globalization

Employment Opportunities:As economic integration

encourage trade liberation and lead to market
expansion, more investment into the country and
greater diffusion of technology, it create more
employment opportunities for people to move from
one country to another to find jobs or to earn higher
pay. For example, industries requiring mostly
unskilled labor tends to shift production to low wage
countries within a regional cooperation

Disadvantages Of Economic Integration

Creation Of Trading Blocs: It can also increase trade

barriers against non-member countries.
Regional Economic Integration Benefits All
Trade Diversion: Because of trade barriers, trade is
diverted from a non-member country to a member
country despite the inefficiency in cost. For example,
China's rapid economic development is going to has
a country deliver real trading
to stop benefitswith
rather thancost
a low pose threats to its
Asian neighbous, including ASEAN countries and Japan.
manufacture in a non-member country and trade
with a manufacturer in a member country which has
This point was forcefully made by Long Yongtu,
a higher secretary-general of the Boao Forum for Asia, at
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the ninth China DailyCEO Roundtable themed "China-Asia Business Partnership: Implications for
multinationals" held in Beijing yesterday.
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This point was also echoed by some 30 China-based chief executive officers and senior executives
of leading multinationals, domestic companies and international organizations such as BASF, Shell,
Pfizer Investment, BMW Group, British Airways, the Walt Disney Company, Eastman Kodak,
China Unicom and Clear Media, as well as the Asian Development Bank, who attended the
conference yesterday.

Focus on regional cooperation

China has become a very active participant in regional economic co-operation and integration in
recent years. The objective of the initiatives is to let other Asian countries share the economic
achievements that China has made in the past decades, said Long.

The country has demonstrated its strong willingness and commitment to regional integration such as
establishing a free trade area with ASEAN (Association of Southeast Asian Nations) countries and
proposing such an area with Japan and South Korea in recent years.

"The key words during the process are open and responsible," stressed Long.

The former chief negotiator for China's resumption of GATT contracting party status and its
accession to the World Trade Organization (WTO), Long said China's WTO membership and its
continuing spectacular economic growth had prompted the country to switch from an conservative
to an active approach to achieve economic integration in Asia.

"China considered that its active participation in regional integration could be interpreted by the
international community that China intends to become open and responsible. That's why China
started its long journey of negotiation on the establishment of a free trade area with ASEAN
countries," said Long, who is now active in promoting regional economic co-operation.

Meanwhile, China also intended to deliver a strategically important message that it wished to
alleviate concerns among its neighbours, including ASEAN countries.

The concerns, resulting from the rapid economic development of China, included issues like China
taking away their foreign investment and jobs and the rise of China posing a threat to regional
stability.

It was reported that beginning this July, China and the ASEAN countries will implement an
agreement on the trade of goods under their FTA pacts.

Tariffs on most goods flowing within the China-ASEAN FTA will be finally cut to zero by 2010.

Figures from the Ministry of Commerce of China show that trade in goods covered by an "early
harvest programme" - the prelude to an FTA - between China and ASEAN members, reached
US$1.7 billion by the end of last year, up 41 per cent year-on-year. The "early harvest programme"
exempts some products from tariffs before the FTA is completed.

"So regional economic integration is a kind of sharing that China wants to show its responsibility to
create common prosperity and development in Asia," said Long.

East Asia linking up

Long, a veteran in multilateral economic, trade and legal affairs, continued that China, Japan and
South Korea, whose combined GDP accounted for about 90 per cent of the total in East Asia, could
play a more important role in this process.

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Analysts expected China to lead a feasibility study for an East Asian FTA this year.

The East Asian FTA, bringing together China, Japan, South Korea and ASEAN member states,
should be an exciting goal for China and the entire region, although achieving this will not be a
simple task. China and South Korea started a non-governmental FTA study two weeks ago.

"Without close economic co-operation among China, Japan and South Korea, it could not be
meaningful for East Asia economic integration," he emphasized.

Specifically, China and Japan could make joint efforts in many fields, such as energy, to work
towards regional co-operation.

Long indicated that some misconceptions currently exist about Sino-Japanese relations. For
example, as many media have reported, China is furiously competing with Japan as both are now
the world's major oil importers, both with massive demand for oil.

"I do not agree with that point of view," Long stressed. "I am very optimistic about the overall
relationship, especially the trade relationship, because I now see that China and Japan share much
more in common than ever before."

Taking the energy sector as an example, Long said China and Japan shared a lot in common, given
that both are concerned "about the production, exploitation, price stability, and the safe
transportation of oil."

"Despite some current political difficulties, I firmly believe that China and Japan will become very
close economic partners in the long term, because of the demand of market forces and the demand
of economic integration in the region," Long said.

"We should seek the common grounds of the two countries and explore all possibilities to seek
multilateral prosperity and stability in the region," he stressed. "China and Japan are mutually
needed."

Long also added that the integration between East Asia and South Asia is of equal importance in the
region, and ASEAN countries could act as a bridge between the two.

It was reported that a FTA feasibility study with Pakistan is likely to be completed during the
upcoming visit of Premier Wen Jiabao to Pakistan in April.

Along with the completion of the joint feasibility study, formal FTA negotiations are expected to
commence during Wen's visit.

Reports said Pakistan and China have agreed on a summary regarding the FTA, which comprises
items that would get duty facilitation ahead of the FTA and would be signed in April during Wen's
visit.

Executives' view

Sharing the efforts to promote regional integration, Toru Shibuchi, China country director of the
Asian Development Bank (ADB), said the ADB has been devoted to promote regional integration in
Asia through some trade-facilitation measures. He revealed that about 20 agreements to simplify
customs clearance would be signed by six Mekong countries including Thailand, Cambodia and
Viet Nam.

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Henry Wang, corporate planning director of Shell China, said he totally agreed with the importance
of regional co-operation. Giving the chemical industry as an example, Wang said the promotion of
the use of clean energy such as natural gas and LNG (liquefied natural gas) in Asian countries,
including China, would help achieve win-win integration and benefit the countries and the
companies involved.

"When it comes to regional integration, China could be a major pool of talent in Asia," said Allan
Gabor, chairman and general manager of Pfizer Investment. Out of the 1,200 staff in its research
and development division, only four are non-Chinese.

Gabor's view was echoed by Peter Bowie, chief executive officer of Deloitte China, the strategic
partner of the CEO roundtable. The company is planning to invest US$150 million in China in the
next few years, 60 per cent of which will be invested in people.

Meanwhile, Bowie said China should focus more on establishing a sound financial system and free
flow of services in the country to help propel the process of regional integration.

Speaking of a country's responsibility during regional integration, William Valentino, general

manager of corporate communications for Bayer Far East (Greater China), said government leaders
should pay more attention to healthcare and environmental issues.

For instance, the bird flu outbreak in Viet Nam has affected the whole region, while pollution in
China might affect its neighbours.

"Trade might have barriers among countries while the environment and healthcare are typical issues
with no boundary restrictions," he said.

Echoing Long's view on China and Japan's energy co-operation, Tadashi Ishihara, CEO and director
of the board of Nissan (China) Investment Co Ltd, suggested that China and Japan could work
together on advanced research and development projects like energy-saving technology.

Furthermore, William Lo, executive director and vice-president of China Unicom Ltd, said he was
familiar with integration as it happened a lot in the telecom industry, and he had a distinctive view
on the issue. "Integration is a matter of time. It does not come from the government's initiatives but
from the contribution of the private sector," said Lo.

Ying Yeh, chairman of Eastman Kodak Greater China Region, pointed out that governments in Asia
should consider more for the multinational companies when formulating regional trade and
economic policies.

"The business sector should be the primary force of the process of regional integration, and
integration would turn into empty talk, without a contribution from the private sector," Long said.

"Multinationals should play an active role here by providing information and incentives, as well as
policy advice to governments," Long concluded.

(China DailyMarch 30, 2005)