THE ROLE OF JAPAN IN EAST ASIAN ECONOMIC INTEGRATION

Abstract

East Asia is an outstanding evidence of the benefits of economic liberalization. Openness of these economics towards international trade and foreign direct investment (FDI) is the main contributor to their dynamic performance in the recent decades. But the rise of protectionism in major markets in the world had brought them to the realization that the development of closer intra-regional ties are necessary to counter such a threat. Concerted actions will be able to deliver greater benefits and bargaining leverages than unilateralism and hence, the growing idea of an East Asian grouping. In any East Asian grouping, the natural leader will be Japan as she is the most developed member. Her participation and initiatives will be crucial to the success of the grouping. The objective of this thesis is to analyze the forces behind East Asian regionalism and the role of Japan. The analysis begins with a brief introduction on the different economies of East Asia. Next, the different frameworks of regionalism arc examined. The third chapter looks at the trade and investment linkages between East Asia and Japan. Japan is increasingly more dependent on East Asia for trade; therefore there is an integrating force evolving from Japan to East Asia. In future, this will link the Japanese economy closer to East Asia. For FDI, Japan's share of total FDI in East Asia has been rising. For example, in Thailand, Japan has overtaken United States (US) to be the most important investor. In other East Asian states, Japan is one of the most important investors. Japan will increasingly be looked upon as an investment provider in the future as East Asian economics seek to upgrade their economies. The conclusion is that market forces rather than formal institutions are pushing the East Asian economies closer to Japan; therefore East Asia is a natural economic bloc. Natural economic integration can be strengthened by institutional ties. A fom1al grouping should comprise all economics in East Asia. Currently, East Asian economics belong to a number of sub-regional groupings as well as the Asia Pacific Economic Cooperation (APEC). However, APEC also encompasses Australia, New Zealand, Canada. US, Mexico and Chile. Alternatively, Dr. Mahathir, Prime Minister of Malaysia has proposed an East Asian Economic Caucus (EAEC), a pure East Asian grouping. The finding of this thesis indicates that due APEC move to initiate free trade in the region by 2020, the formation of a free trade area among East Asian economics becomes redundant. Therefore, EAEC must take the form of being a consultative forum to resolve and discuss issues of concerns. Japanese initiatives should not stop at participation in EAEC but continue to initiate other projects that will promote the existing bond between the East Asian economies. The different initiatives that Japan can take are: • a disseminator of trade and investment information. • assisting the developing economies in East Asia by helping them to solve problems that are pertinent to development like pollution and traffic control. • a provider of technology and capital to East Asia . • future deregulation of her market and be an absorber of exports from East Asia. • promotion of academic and scientific projects that are beneficial to the region. • aid in the area of dispute settlements by setting up timetables and procedures. • learn to be the voice of East Asia and thus initiate dialogues and conferences where ideas and consensus can be forged. As Japan continues to trade and invest in East Asia, she will be able to bring the East Asia economies closer to her. To speed up the pace of integration, Japan has to be more active in the institutionalization of East Asia.