East Asian Integration: Proposal review by Lili Yan Ing, Martin Richardson and Shujiro Urata

1 Introduction
 Lili Yan Ing, Martin Richardson and 
Shujiro Urata

 Right after the World Trade Organization (WTO) was established in january 
1995, the number of bilateral and regional agreements began to mushroom. The 
number of free trade areas (FTAs) grew from 44 in 1995 to 290 in November 
2018. The Association of Southeast Asian Nations (ASEAN) also experienced 
an increase in the number of FTAs from 5 to 47 over the same period. As of No-
vember 2018, ASEAN as a group had six FTAs, of which one is among ASEAN 
countries, and the others are with its six main trading partners: the ASEAN 
Free Trade Area (AFTA), ASEAN-Australia-New Zealand FTA, ASEAN-China 
FTA, ASEAN-India FTA, ASEAN-japan CEPA and ASEAN-Korea FTA. To 
improve the level of liberalisation in goods, services and investment, ASEAN 
and its six main trading partners have agreed to consider a new FTA: the Re-
gional Comprehensive Economic Partnership (RCEP).
 The RCEP has been under negotiation since November 2012. Six years later, 
by the time of the final stage of editing this book, November 2018, the RCEP 
has been through more than 20 rounds of negotiations. We hope this volume 
will serve as meaningful analyses to academics, practitioners and policymakers 
in providing not just an understanding of regional integration and cooperation 
in East Asia to date but also a profound base that provides insights in designing 
better preferential trade agreements or economic cooperation in the region. The 
book comprises ten chapters which analyse trade in goods, trade in services and 
investment.
 In Chapter 2, Urata starts the book with an overview of regionalism in East 
Asia. East Asia has witnessed the proliferation of FTAs during the last three 
decades, beginning with the AFTA in 1993. A series of bilateral and regional 
FTAs have been discussed and enacted since around the turn of the century in 
a competitive pattern, involving many East Asian countries, including ASEAN 
member states China, japan and Korea. Despite the active formation of FTAs, 
a region-wide mega-FTA involving all East Asian countries has not yet been 
established. The closest one is the Comprehensive and Progressive Trans-Pacific 
Partnership (CPTPP) agreement, which is scheduled to be enacted towards the 
end of 2018, but it only includes a few East Asian countries.
 The RCEP agreement, which includes all 16 East Asian countries, has been in 
negotiation since May 2013 without concluding. The importance of establishing 

 a rules-based trading system such as RCEP has increased because of intensifying 
protectionism by the US under the Trump administration and the stalemate in 
multilateral trade negotiations in the WTO. This chapter reviews the trend in 
FTAs in East Asia by referring to their competitive nature and identifying their 
special characteristics, and provides suggestions to overcome the challenges to 
reach an agreement for the RCEP negotiation.
 Chapter 3 by Itakura estimates the economic effects of the integration of 16 
East Asian countries in the RCEP. Itakura estimates how the formation of the 
RCEP will affect individual ASEAN member economies’ gross domestic prod-
uct (GDP) growth, exports, imports and total welfare. By applying a recursively 
dynamic computable general equilibrium model of global trade, the chapter con-
siders three policy scenarios: Scenario 1 is tariff rate reductions, Scenario 2 is this 
plus services trade cost reductions and Scenario 3 is Scenario 2 plus investment 
liberalisation.
 Applying Global Trade Analysis Project (GTAP)-11, the simulation experi-
ments of RCEP explore the potential economic gains from liberalising goods 
and services trade, improving logistics of merchandise goods and fostering in-
vestment in the region. The simulation results suggest that all the participating 
countries in RCEP will gain in terms of real GDP, ASEAN’s real GDP rising 
by 4.7 percent from the baseline, in 2035. For each ASEAN Member States, 
RCEP has varying degrees of impact, reflecting the economic size and depth of 
liberalisation. As RCEP commits to promoting investment, the increase in real 
GDP is boosted even more. Investment in all member countries rises as RCEP is 
implemented, and trade volumes expand for the participating countries.
 In Chapter 4, Zhinhong Yu provides an anatomy of the evolution of the struc-
ture of China’s trade with Southeast Asian countries (namely ASEAN), using 
detailed Chinese Customs data. The analysis discovers dramatic compositional 
changes in ASEAN-China trade across ownership, product and the processing 
trade regime over the last two decades. In particular, since the late 1990s China’s 
active engagement in the global production network has led to the reorienta-
tion of China-ASEAN trade towards intermediate goods and machinery sectors, 
which are characterised by high processing trade intensities and are dominated 
by foreign-owned firms located in China. As a result, ASEAN’s exports to China 
have surged, leading to sizeable trade surpluses.
 However, this trend has not continued in recent years and, if anything, has 
reversed. Indeed, the growth of China’s imports from ASEAN firms has slowed 
down since 2011, accompanied by decreasing shares of the machinery and in-
termediate good sectors, and declining processing trade intensity. On the other 
hand, non-processing exports from indigenous Chinese firms to ASEAN have 
risen sharply, especially in these same sectors. Taken together, these forces 
turned ASEAN’s trade surplus against China into a trade deficit, which might 
even widen in the years to come. The results imply that policymakers in ASEAN 
countries must make appropriate policy adjustments to cope with China’s struc-
tural transformation towards a “new normal” model of trade growth in order to 
achieve a healthier trade balance with China in future.

East Asian Integration: Proposal review by Lili Yan Ing, Martin Richardson and Shujiro Urata