Asia trade deals threaten integration

ADB warns on bilateral free trade agreements

  • By Philip Alexander
  • 04 May 2007
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The “proliferation” of bilateral free trade agreements in Asia must pave the way to closer economic and financial integration, Jong-Wha Lee, the new head of the ADB’s Office of Economic Regional Integration told Emerging Markets in an interview.

Lee, a former academic who took up his post earlier this year, acknowledged that there had been “some disappointment among Asian member countries on the slow progress of trade integration” in the past. This had partly provoked the turn to bilateral free trade agreements.

His concern is that these could hinder, rather than encourage, progress in the future. “Bilateral FTAs should be aiming at open regionalism. If you have too many restrictions in a free trade agreement, it will not be possible to enlarge it into a regional free trade area,” he warned.

Lee recognises that some countries see the strength of low-cost competition from China and India as a threat, but he added: “The other side is that many Asian countries depend on the large markets in China and India.”

There has never been a better opportunity for closer economic and financial integration in Asia, Lee believes. He observed that even bilateral FTAs have served a purpose in giving regional policymakers the experience of free trade negotiations, and in reducing domestic opposition to the concept. “I still believe that they can be a stepping stone, rather than a stumbling block.”

Above all, he expects economic realities to set the tone for policy decisions. “The proportion of intra-regional trade in Asia is getting closer to the level among the members of the EU, so there is significant interdependence.”

Lee emphasised that the ADB’s role would be mainly as a “facilitator in this dialogue” rather than as the driving force, but also said that the bank must focus on surveillance of regional trade and financial integration activities, to ensure the maintenance of common standards and documentation.

“We are the only organisation that has the comprehensive membership and competence to play that role in this area”, he said.

Lee believes that, ultimately, responsibility for the success of the Chiang Mai plans for an Asian Currency Unit lies with national policymakers rather than the ADB.

“I am hopeful that the Asean+3 will announce a positive development on the Chiang Mai Initiative and financial integration at this meeting,” he said. “We have said that it is time to consider regional settlement and clearance and pan-regional primary dealers for the Asian bond markets, and also for foreign exchange markets.”

  • By Philip Alexander
  • 04 May 2007

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