Japan Economic Foundation

Chairman's Speech

7 . Creating an EAFTA

International Symposium
"Creating the East Asia Free Trade Area (EAFTA)"
27 October, 2005
Noboru Hatakeyama Chairman and CEO Japan Economic Foundation

Japan Economic Foundation (JEF) held an international seminar entitled "An Integrated Roadmap to an EAFTA last February in Manila with the cooperation of Asian Institute of Management there.
According to a loose consensus which emerged in this seminar, the negotiations for an EAFTA should be concluded after 2017 and before 2020. By 2017 ASEAN will have established FTAs with Japan, China and South Korea. This loose consensus assumed that the final negotiations for an EAFTA could take into consideration final contents of FTAs between ASEAN and three. 2020 is the year when, ASEAN declared in Bali in October 2003, ASEAN will establish the ASEAN Economic Community (AEC). The reason why the loose consensus in the seminar put the establishment of the EAFTA before 2020 was because it considered that since the AEC is supposed to be a community, the AEC must be a deeper integration and more difficult to establish than an EAFTA. The EU, a typical community, included the concessions of part of sovereignty of each member country from the first place. Like the EU, each member country of the AEC will concede part of its sovereignty such as the right to conduct international trade policies to the AEC whereas an EAFTA is just a free trade agreement, the loose consensus assumed at least subliminally.

2 However I am afraid this assumption was wrong. A few leaders of an ASEAN member country whom I visited recently told me that the AEC would not be a full-fledged community like the EU, unanimously denying the member countries' concessions of sovereignty to the AEC. Some of them even said that the AEC would be something like an Economic Partnership Agreement (EPA) among ASEAN countries. What they meant might have been the AFTA should be expanded to cover trade in services. But that expanded AFTA would be quite different from community. If the AEC is just an ASEAN-EPA, it would be misleading to name it "community". In addition, if the AEC is just an ASEAN-EPA, timing of establishing the EAFTA should be after that of the AEC because the latter will be only part of the former.

3 The ASEAN's definition of the word "community" is important not only for countries in the ASEAN but also for other East Asian countries or economies .
Unless ASEAN countries and non-ASEAN economies can agree on a definition of community, possibly both sides might have different dreams even though they are in the same bed. If they agree that "community" accompanies concessions of sovereignty, that would be fantastic but ASEAN Secretariat should disseminate that definition to ASEAN member countries for sure, including those leaders I met recently. If they agree that "community" does not accompany concessions of sovereignty, an East Asian Community will turn out to be just something like an ASEAN-EPA and the EAC should change its name .
Regarding the membership of an EAFTA, there are two issues.
The first one is the Australia, New Zealand and India issue. Since it was already decided for these three countries to participate in the East Asian Summit in coming December, it might be natural to include them from the first place.
The second one is Taiwan issue. The size of the Taiwanese economy measured by its GDP is bigger than those of any ASEAN countries. Therefore, I personally think it would be indispensable for Taiwan to be a member of an EAFTA not as a country but as a "separate custom territory" as has been the case with the WTO. For this purpose Taiwan should accept the "One China Principle" (OCP). Back in 1993 when the first APEC leaders meeting was held in Seattle, the then Trade Minister of Taiwan, told the press that in the future there would be one China, but until then there were and would be two Chinas. The current President, Chen Shui—bien, seems to take the view that there are and will be two Chinas forever. However, Japan has committed itself to the OCP. The U.S. is also committed to the OCP. Therefore, the current Taiwan's policy cannot be supported by China and other countries. The government of Taiwan should go back to the policy expressed more than 10 years ago. But at the same time the government of China should be flexible in terms of the definition of "One China". The question of Which One China will prevail in the end should be kept ambiguous so that the government of Taiwan can at least have logical leeway to persuade the Taiwanese people to accept the OCP.