Conclusion: Challenges Ahead

Economic regionalism is taking root in East Asia. The region is becoming highly integrated through market-driven trade and FDI activities and, at the same time, FTAs are proliferating. The paper has argued that consolidation of multiple and overlapping FTAs into a single East Asian FTA can help mitigate the harmful "noodle bowl" effects of different ROOs and standards. This move will encourage the participation of low-income countries in freer trade arrangements, reduce trade-related business costs particularly for SMEs, and promote trade and investment.

The paper has also suggested that WTO-plus elements need to be further expanded and that the consolidation at the ASEAN+6 level would yield the largest gains to East Asia among plausible regional trade arrangements—while the losses to non-members are relatively small. For such consolidation to occur, ASEAN must act as the regional "hub" by further deepening ASEAN economic integration, the plus-three countries (PRC, Japan and Korea) need to collaborate more closely, and India needs to pursue further structural reforms. Furthermore, substantial international support is required to strengthen the supply-side capacity of poorer ASEAN countries—including the building of trade-supporting infrastructure (transport, energy, and telecommunications)—so that they can take advantage of integrated regional markets and narrow development gaps within ASEAN.

Relationships with the US (and the EU) are important for the region. For many East Asian economies, the US is the crucial ally from a security perspective, particularly given the geopolitical concerns in the Korean Peninsula. APEC remains important for East Asia and the US because it is the only multilateral economic forum that connects the US with East Asia. A natural approach for East Asia is to strengthen economic ties with the US through the formation of an East Asia-North America Free Trade Area FTA (or an APEC FTA). While several East Asian countries have agreed on bilateral FTAs with the US, some have reservations about a comprehensive agreement with the US. Deeper questions also remain as to whether the US is ready to agree an FTA with East Asia—that includes the PRC—and whether the US trade promotion authority (which expired in June 2007) will be extended.

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