Asian Economic Integration in the Age of Geopolitics: Back to Bilateralism and Fragmentation?
By WANG Jiangyu

Asian Economic Integration in the Age of Geopolitics: Back to Bilateralism and Fragmentation?

Jul. 16, 2023  |     |  0 comments

Regionalism is not a new concept and has existed for many years. Since the 1950s, we have witnessed three waves of regionalism. The first wave occurred in Europe, and this process is still ongoing. The second wave of regionalism emerged in North America, mainly in the form of the North American Free Trade Agreement. The third wave of regionalism took root in Asia, and Singapore was one of the pioneers of regionalism. Initially, we began with Japan and the United States signing the free trade agreement. Still, the sign of the milestone in Asian regionalism is the signing of the China-ASEAN Free Trade Area. This was the first free trade agreement that included many Asian countries, and at the time, 11 countries signed this agreement, making it unprecedented.

Next is ASEAN+ Korea, Japan, and India, which apply the same model to different countries for collaboration. By signing the China-ASEAN Free Trade Area agreement, Asian countries are discussing Asian economic integration, and we will follow these models. What differentiates China from the previous two waves of regionalism is that China is a very proactive participant and even a leader in regionalism development. Many people believe that regionalism is a secondary option in the context of global economic integration, and multilateral trading systems like the World Trade Organization (WTO) would be preferable. However, the WTO negotiations are stalled for geopolitical reasons, leading different countries to focus on regional mechanisms and agreements instead. 

As for the common market, I will provide an academic commentary. To understand the development and trajectory of regional economic integration, we need to examine the literature on economic integration, which suggests five stages: free trade zones, customs unions with common tariffs, common markets with free movement of production factors such as goods, services, labor, and technology, economic communities, like the economic union of the EU, which is currently the only regional bloc realizing economic integration but has not achieved full economic integration yet. If we can achieve this level of economic integration, it would no longer be several countries; it would be one country, such as the Chinese or US economy. It is difficult for alliances between countries to achieve this because of the presence of democratic and sovereign countries.

Our current economic community is not yet perfect, and the EU continues to exist as an imperfect form. From an academic perspective, explaining the common market concept is viable, such as the China-ASEAN common market idea. At least we now have relatively mature conditions to conduct some feasibility studies. Therefore, developing economic integration in Asia is a political process, and without exception, regional economic integration must begin with political integration, not economic considerations. Even though the benefits of economic liberalization are the primary concern, integration is primarily considered from the perspective of economic development and is also the main driving force. However, everything still starts with political factors.

After establishing the "ASEAN+1" model, as we mentioned earlier, ASEAN countries began to discuss regional integration towards pan-Asia. There are two early models: China proposed the "ASEAN+3" model, adding three East Asian countries to ASEAN. Japan initially agreed with China's view but later turned to another model, the "ASEAN+6" model. Considering geopolitical factors, Japan hopes to bring Australia, New Zealand, and India. Japan felt it could not compete with ASEAN in the "ASEAN+3" model, so the dispute between the Japanese and Chinese models lasted for many years and had no conclusion. Later, the rise of the TPP caused us to consider the role of the United States early on. Initially, the United States did not participate in the ASEAN integration process because it was more concerned with counterterrorism, which was its top priority then. The United States had little interest in Asian economic integration and had a neutral attitude toward it. When Asia began to discuss the issue of pan-Asian economic integration through the East Asia Summit, the United States became a bit anxious. It also hoped to intervene, slow down, or block this process but was unsuccessful, which is why the TPP emerged. The TPP was initially a trade agreement with three Asia-Pacific countries (Singapore, New Zealand, and Chile), and Brunei joined in 2005. In 2008, the United States also decided to join the TPP. At that time, it was during the Bush era, and the TPP project was completed during the Obama administration.

Therefore, the TPP is a complex agreement representing the highest rule-making and economic liberalization level. It still represents the highest level currently, and other ERAs cannot surpass it, especially when compared to RCEP. However, from a geopolitical perspective, the TPP is a dividing line. It initially stopped or halted the discussion of Asian economic integration. Half of the Asian countries joined the TPP, and Asia no longer discussed pan-Asian economic integration. But after the TPP negotiations were completed, Asian countries began to worry because ASEAN had played a leading role in the early stage of pan-Asian economic integration. In the early stage, they respected ASEAN leadership and promoted the integration process in Asia. Therefore, ASEAN was at the forefront then. However, in the TPP process, ASEAN has been pushed aside and has no decision-making power. Indonesia proposed the concept of RCEP, so everyone needs to understand that China's role has also begun to strengthen in the process of RCEP. Geopolitical factors have been raised again in economic integration, and the dispute between RCEP and TPP is between the US and China. TPP or RCEP has pushed it, and China welcomes RCEP. China has indeed felt threatened by the TPP, so China also supports the RCEP process. This brief examines the history of Asian economic integration from a geopolitical and rule-making perspective.

What is the current situation? Pan-Asian economic integration is now at a standstill, with no one talking about pan-Asian economic integration anymore. The RCEP agreement is an important step forward for pan-Asian economic integration. However, the success of RCEP itself is still quite limited because it represents shallow rather than deep integration. RCEP has many good systems, such as the origin country system, which can help us shape Asian identity. Asian countries have identity recognition, realizing that Asia can have its free trade agreements and economic integration without the participation of a major external power. However, from the perspective of economic liberalization, the achievements of RCEP are limited, as it only represents low-level or superficial liberalization and cannot reach the level of deep liberalization achieved by the TPP. This is the current state of modern pan-Asian economic integration, which is a very interesting topic. It is mainly due to the geopolitical competition between China and the US. Now Asian countries have, to some extent, returned to bilateralism. For example, it is no longer a pan-Asian economic integration, and countries have begun bilateral discussions. From a higher-level perspective, there is a regression. The new development is the Indian economic framework, bringing a new situation and model for pan-Asian economic integration.

Similarly, the United States leads one, but the United States no longer wants to promote free trade. Some countries hope that the United States will join the TPP, but the US Trade Representative has already stated that the United States no longer wants to sign free trade agreements. Free trade agreements are yesterday's news, and the US is not interested. The US wants to create a new approach under the IPF's new banner. The US no longer wants to promote market access, such as lowering tariffs. Instead, the US wants to focus on two things: first, the US seeks to reshape the supply chain and hopes to strengthen the economic resilience and mutual assistance to ensure that the supply chain is rooted in friendly countries and allies to exclude China as much as possible from the supply chain. Second, the US can formulate rules through the ITE, which are new-generation rules while excluding rules. Once the rules are formulated, it's not China's turn to decide whether to join. China can no longer participate in rule-making, so this is the US view of IPA, which means the US has given up on free trade and turned to a new direction. China primarily advocates bilateralism and seeks to upgrade its bilateral trade agreements with ASEAN countries, including Singapore, New Zealand, and Australia. China is also very serious about wanting to join the CPTPP. The US has veto power. If the US exits, China wants to join the CPTPP. It is not necessarily about a liberal order but more about China's market forming a route that complements the "Belt and Road" initiative. This is also an angle from China's perspective. China does not want to be a free trade agreement but mainly wants to promote its standards, establish a new supply chain, and create its economic order.