Introduction

East Asia includes some of the world's most export dependent economies. They are confronted with a heavy dependence on the European (i.e., European Union [EU]) and United States (US) markets, the challenges of the stalled Doha Development Round (referred to as the Doha Round), and the fall-out effects of the 2008–2009 global financial and economic crisis that began in the US and swept across Western Europe and Asia.

World trade is forecast to contract by 9% in 2009, driven lower by the collapse in global demand and a shortage of trade financing for many developing countries. In East Asia, responses to the global financial and economic crisis have included fiscal stimuli to offset the sharp falls in export demand; rebalancing economic growth to focus more on domestic demand generation; economic and structural reforms to prepare for a post-crisis world; and the pursuit of regional economic cooperation and integration, particularly in trade and financial cooperation, to maintain regional financial stability, resilience, and growth momentum.

The dismal outlook for the World Trade Organization's (WTO) Doha Round and the ongoing global financial and economic crisis are creating a need for regional trade and investment integration in East Asia to provide a fallback position for the stalled Doha Round, and to provide new growth stimuli in the absence of a rapid recovery of the North American and European markets.

The economic integration literature has two definitions of East Asia, one referring to ASEAN, PRC, Japan, and Korea (ASEAN+3) and the other referring to ASEAN, PRC, Japan, and Korea as well as Australia, New Zealand, and India (ASEAN+6). This paper adopts the broader definition. Section 2 looks at the issues that caused the Doha Round to stall, examines its prospects, and builds a case for regional economic integration. Section 3 examines the fall-out of the global crisis in East Asia, looking mainly at the trade channel and the unraveling of the decoupling thesis, the threat of rising protectionism, and the need to rebalance growth. Section 4 analyses the role that East Asian regional and bilateral free trade agreements (FTAs) can play in the restructuring of East Asia in response to the global crisis. Section 5 examines the case for a region-wide FTA and the various proposals on hand. Section 6 concludes.

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