The Association of Southeast Asian Nations stands at the center of a dynamic economic tapestry in Asia and Oceania. Flanked by the industrial powerhouses of China, Japan and the Republic of Korea, ASEAN has been playing a pivotal role in fostering regional economic integration. The three countries and ASEAN, with the help of the Regional Comprehensive Economic Partnership agreement, are facilitating the economic development of Southeast Asia through trade, investment, technological innovation, and supply chain integration.
ASEAN's journey, starting with five countries — Indonesia, Malaysia, the Philippines, Singapore and Thailand — toward regional integration began in 1967 with a focus on promoting peace and stability. Recognizing the interconnectedness of economic prosperity and regional security, the ASEAN member states embarked on initiatives such as the ASEAN Free Trade Area in 1992. The AFTA was formed to eliminate tariffs on most goods traded among the ASEAN member states, facilitating the movement of products and boosting intra-regional trade by about 222 times by 2016 compared with 1967 levels.
ASEAN now has 10 members, and the AFTA has not only spurred economic growth among them but also created an attractive market for external investors, particularly from the Northeast Asian economic giants.
The economic growth of Japan, ROK and China has been a significant driver of the region's long-term growth and integration. The three countries' robust appetite for raw materials and their position as manufacturing powerhouses have fueled trade with ASEAN. China is ASEAN's largest trading partner, with bilateral trade exceeding $722 billion, and Japan is the third exceeding $268 billion after United States' $420 billion, ROK is the forth with around $223 billion in 2022. The United States, incidentally, is ASEAN's second-largest trade partner with a two-way trade volume of $420 billion.
But ASEAN's economic journey has not been smooth. Indonesia, Malaysia, the ROK and Thailand experienced a serious economic downturn due to the 1997 Asian financial crisis. At that time, Japan played an extremely important role in helping revitalize ASEAN's economy as a whole by pumping in as much as $30 billion into the ASEAN and ROK economies under the "New Miyazawa Initiative" framework. China, too, played a key role in revitalizing the ASEAN economy by keeping the yuan's exchange rate flat. And Japan and the ROK, with their technological prowess, also played crucial roles in stabilizing the region's economy.
Japanese FDI in ASEAN member states has played a vital role in developing infrastructure, and promoting technological advancements in fields such as electronics and automotive manufacturing. Now ASEAN-made cars are exported to the Middle East, Africa and even Japan. The ROK, too, has invested heavily in the region, particularly in Vietnam, contributing to its emergence as a manufacturing hub. To be sure, these investments have fostered knowledge transfer and upgrading of ASEAN workforce's skills, thereby enhancing the region's competitiveness in the global market. China, too, has invested heavily in ASEAN.
The establishment of the RCEP has further bolstered regional economic integration. This mega trade agreement among all the 10 ASEAN member states and China, Japan, South Korea, Australia and New Zealand has created a free trade zone encompassing nearly a third of the global population (2.3 billion) and a cumulative GDP of $26 trillion. And the RCEP has eliminated tariffs on more than 90 percent of goods traded among the 15 signatory economies, thereby helping expand trade and attracting investments.
Besides, the RCEP promotes the harmonization of regulations and standards, simplifying cross-border trade and creating a more predictable business environment. This economic integration has significant implications for the development of Southeast Asian countries, as increased trade flows lead to economies of scale, allowing ASEAN producers to benefit from relatively low production costs and compete more effectively in the global market.
Also, FDI by China, Japan and the ROK provides much-needed capital for infrastructure development, industrialization and job creation in the region, with a 2021 study by the Asian Development Bank estimating that the RCEP could increase signatory countries' incremental income by up to $514 billion by 2030.
But challenges remain. The gap in development level of ASEAN member states has created disparities in benefits, as less-developed countries struggle to compete with established players such as Indonesia, Malaysia, Thailand and Vietnam. In addition, a surge in imports from more advanced economies could threaten the domestic industries of some ASEAN member states. As such, effective policy response is needed to bridge these gaps and ensure inclusive growth.
In conclusion, ASEAN, China, Japan, and the ROK are playing a critical role in shaping the economic landscape of Asia and Oceania. Through trade, investment, technology transfer and supply chain integration, these economies are fostering a dynamic regional economy. The RCEP, with its focus on trade facilitation and harmonization of regulations, is a milestone in the region's economic journey. Moving forward, ensuring equitable distribution of benefits and narrowing the capacity and development gaps among the region's economies remain crucial for maximizing the positive impact of regional economic integration on the development of Asia and Oceania.
The author is an associate professor at the Graduate School of Management, Ritsumeikan Asia Pacific University.
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