Integration Processes in the Countries of the Asian-Pacific Region - Essay Example

Introduction s have become increasingly interdependent and regionalism is perceived as a stage for further multilateral trade liberalization. Regionalism is divided into two broad categories. One is discriminatory in that there is free trade among the members of the region but the non members are excluded for example the cases of free trade areas. These include customs unions such as the European Union (EU) and North American Free Trade Area (NAFTA) and the other are preferential trading areas. The other one is compatible to the most favored rule of the World Trade Organization (WTO) and referred to as ‘open regionalism’ which allows free trade among all members and non members in the region. The gradual elimination of internal trade barriers leads to greater multilateral trade liberalization in a given region promoting globalization (Glatzer, 2005). It has been argued that economic reform measures including trade liberalization, have been contributing to bringing the Asian economies under the folds of globalization as explained by Olds (1999). The Asian Pacific Economic Cooperation (APEC) belongs to the ‘open regionalism’. It originated during the time of economic liberalism. It is base on the neoclassical theory that stipulates that the state should play an insignificant role in the economy and let the market forces in the economy lead towards economic growth; this resulted to the idea of market integration. The APEC was established as there were fears of emerging geographical arrangements in North America and Europe. Additionally, the possibilities of the collapse of the Uruguay Round of the GATT (General Agreement on Tariffs and Trade) led to the developing conflict between the United States and Japan. This made Japan intensify the idea of market integration and open regionalism in the APEC. Asia and globalization Asia was notably absent from the world economy in the Industrial Revolution to the recent times. This trend began to change fast with the rise of Japan and other Asian countries. Asia accounts for approximately 40% of the global GDP and over 20% of the global inflows (ESCAP, 2008). China and India are known to be home of 40% of humanity (ESCAP, 2008). The continent basically has low levels of per capita income, productive labor and has the potential to catch up with the United States and other well established economies (Chatterji and Gangopadhyay, 2005). The integration into the world is in the early stages and Japan has the capability to rise with the same momentum as United States. Japan dominates the Asian economic activity and accounts for over 50% of the GDP in South and East Asia (ESCAP, 2008). Recently, China has become more integrated in terms of FDI (Foreign Direct Investment) penetration and trade displacing Japan as the world’s third largest trading nation. The country accounts for a slightly higher percentage in the global trade and accounts most of the FDI flows to the developing world. India global integration is not as impressive but it has also come a long way in the recent times. The South Asian countries face political instability and ethnic conflicts which hinder trade liberalization and global integration (Ferguson and Mironesco, 2008). These countries are highly dependent on the world economy. A good example is China where FDI-driven models are essential to their growth models. This draws our attention to the emerging international and Asian division of labor. Taiwan, Japan, South Korea, Hong Kong and Singapore have a comparative advantage in high-value goods and services. China has an apparent advantage in labor intensive agricultural and manufacturing exports. India has a pool of cheap labor and it should be labor intensive, FDI driven exporter motivating the industrial sector as well as a major exporters of labor intensive agricultural products. Strict labor market restrictions, internal and external limitations negatively impact on employment and production. Southeast Asia is the main beneficiary of the deep integration into the East- Asian manufacturing supply chains. The new and less developed members of the ASEAN (Association of Southeast Asian Nations) can exploit the cheap labor advantage (International Trade and Finance Association Conference and Fatemi, 2006). Globalization in Asia requires massive changes as it results to increasing protectionist pressure and threatens an anti-globalization reaction. East and South Asia stands to develop through fast and effective trade and investment driven growth which develops through poverty reduction and overall improvement of the quality of life (Yamashita and Eades, 2003). Developing countries in the region can benefit through exploitation of their comparative advantage in land, resource intensive products and capital. This results to increasing pressure on labor intensive products that impact on the different classes of workers. The future has the prospects of greater prosperity and huge inequality among the nations in this region. The challenge lies on the political institutions in these countries to open up their borders and extend market based reforms while controlling inevitable protectionist pressures. Trade policy in Asia The global situation for further liberalization is worsening as compared to the past few decades. It has been observed that reforms have not changed much and their forward momentum has declined. This is true for the West and the developing nations in the region with the exception of China. This liberalization skepticism in the present times is affected by a variety of factors. External liberalization has not delivered adequate economic growth, poverty reduction and employment generation in the continent (Chatterji and Gangopadhyay, 2005). Arguments have been made against the developing-country trade liberalization in favor of policy space for industrial policies for example to promote and protect the infant industries. There are many challenges facing globalization in the continent and it is crucial to face them head on. The industrial policy and protectionalism have failed in most developing countries in the continent. The achievement in the East- Asian countries is not principally as a result of effective industrial and trade policies and it cannot be used as an example. Developing countries that have gone to the extent of opening their economies to global competition are those that have developed faster and had more success in poverty reduction and overall improvement of the living standards. This phenomenon is overwhelming in East Asia and South Asia (it was experienced first in Sri Lanka then in India). Contribution of East and South Asia South Korea, Japan and Taiwan are relatively open economies after years of gradual liberalization but have sent mixed signals on market based reforms (Yamashita and Eades, 2003). China is seen as the most globalized nation in the region but it has come a long way to attain this status. The protective impact of non-tariff barriers has significantly reduced over the years. India’s trade policy reforms have not been drastic however they are significant. The average tariffs have considerably reduced encouraging international trade. Internal licensing restrictions and limitations on manufacturing FDI have been eliminated leading to improvement of international trade hence globalization in the region. There are strict regulations governing the agricultural and services sectors and reforms should be introduced fast. Southeast Asia presents a mixed representation as Singapore on one extreme is a free trade economy (Rajan and Institute of Policy Studies (Singapore), 2003). Other members of the ASEAN have relatively liberal policies; the new members have higher levels of protection. Vietnam has recently stepped up external liberalization and it is integrating into the global economy through FDI driven exports. Korea has advanced rapidly towards globalization and there has been increasing foreign investments and financial globalization. Korea has become more integrated in the global economy over the past few years (Chang et al., 2008). The country still ranks low in terms of the number of foreign workers, import penetration and the stock of inward FDI relative to GDP. The country should implement a number of reforms that would enable it make more from human resources, goods and services from abroad. The reforms should include: i) Easing controls resulting into the inflow of workers ii) Minimizing import barriers especially in the agricultural sector through WTO trade agreements and multilateral trade negotiations iii) Minimizing barriers to the FDI, including foreign ownership regulation in some sectors and iv) Improving the business environments to attract the FDI. The economy in Korea The East Asian nations have experience momentous economic growth and development since World War II and they have been classified as New Industrialized Countries (NICs). South Korea is a major NIC as it has experienced an annual growth of over 9% since 1960s (ESCAP, 2008). This phenomenal performance can be attributed to high quality labor supply and government planning which has resulted to the emergence of globalization. The economy has improved over the years from an underdeveloped third world country to a rich manufacturing economy according to Conner and Torimoto (2004). The main contributing factor to this growth has been strong emphasis on exports. Prominence has been placed on high quality industries such as electronic manufacturing and the motor vehicle industry and labor intensive methods of production. This has translated to South Korea being one of the largest motor vehicle manufacturer and electronic goods producer in the world. The focus on the education sector has contributed to the economic growth and development as it results to an educated work force. Another contributing factor to the economic growth has been the rise and development of the transnational business corporation referred to as ‘Chaebol’ (Chang et al., 2008). In the past decade, the four largest exporting corporations were Samsung, Daewoo, LG and Hyundai which amounted to a massive 60% of the total GDP (ESCAP, 2008). This was followed by the globalization of these firms to Australia and other parts of the world. The companies set up subsidiaries in different parts of the world. This was an important contributing factor to the expansion of the Korean economy. The ‘Chaebol’ operates different industries resulting to increasing competition in the world markets due to removal of restrictions. This market restructuring have produced an incentive for the businesses to become global and establish foreign subsidiaries. The firms attempt to reduce the cost of production by using foreign materials and labor from the Southeast Asian neighbors. The global economy is characterized by highs and lows in the business cycle resulting from changes in production within the major economies such as South Korea (Olds, 1999). The Korean government attempts to limit the insecurity of the international business through a rigorous policy mix. The persistent influence of the government is one of the most dominant features of the Korean economy. This is because Korea has limited natural resources hence the government influence is mandatory for any growth and development to occur. In the recent times, the government implemented a five year FDI program to promote economic improvement. In addition to this, government deregulation has helped the global integration process through the decrease of protective industry using tools such as tariffs (Lewis and Sessay, 2002). The economy has risen as an NIC and become more involved in the world’s important trading agreements and trade blocs (Lewis and Sessay, 2002). Korea has been a member of the APEC and has remained one of the fastest growing economies in the world. The economy has been faced by many challenges though. With the introduction of globalization an opportunity cost exists between environmental management and economic prosperity which is in other words referred to as efficiency vs. equity. In relation to the economy, economic growth has led to an overall degradation of the natural environment particularly with the pollution of the major rivers Han and Nak-dong. This will translate to increased pollution levels and the quality of life would decrease as a result. To maintain an ecologically sustainable development for the future generation the government needs to trade off some level of economic growth to give room to environmental protection. Market liberalization has led to the introduction of globalization in the country that has led to changes in all the sectors. Globalization produces changes in social and economic characteristics of a country (Stiglitz, 2003). The situation in the country provides an appropriate case study of analyzing the relationship between globalization and organized labor. The major independent labor movement in the country has become more institutionalized into a new capitalist democracy. A common response of globalization is increased investment in education. The country has been experiencing job insecurity and the associated heightened emphasis on education has had positive effects on the labor force leading to overall improvement of the economy. Globalization has become the forefront of economic planning and discussion in the 21st century (Glatzer, 2005). The move towards market based systems is illustrated by technological advancements; financial transfers and open market trade have become more important as trade organizations for example WTO have become more influential. South Korea is one of the best examples of globalised nations through the shifting emphasis towards rapid industrialization, aggressive exporting and technological innovation. Through comparative advantage combined with a minimum government influence South Korea will move towards the maximization of sustainable economic growth. Conclusion Liberalizing trade across the world is an ongoing process since liberalizing trade has not been completed in most countries. There are barriers that control capital flows and cross border movement in different nations (Prakash and Hart, 2000). There are prospects of future reduction of the barriers in international trade, poverty reduction and employment generation. Reform reversal and stagnation threaten to have negative impacts and deprive people the opportunities to develop economically. Trade policies in Asia must be perceived in a broader context: the institutions and the domestic policies concerned, the international political environment and the global and national macroeconomic policies. There are three basic challenges facing liberalization in the Asian countries. First, a global macroeconomic imbalances need to be unwound in a manner that is favorable to the economies. This requires cooperation from the major players in the world economy. Secondly, further trade and FDI liberalization need to be buttressed with more comprehensive and politically sensitive market based domestic reforms. The latter involves restructuring of the state, away from the large overactive state that affects negatively the economic activities. It focuses on providing and enforcing a framework of rules for market based competition. Thirdly, a functional global economy depends on international stability. Enlightened leadership, workable multilateral institutions and constructive engagement are important to the liberalization of trade in the Asian countries and Korea specifically (Prakash and Hart, 2000). It is important that the continent deepens the cooperation with other major players in the world trade to contain protectionist forces. References Chang, Y, Hyun-ho, S & Baker, DL 2008, Korea confronts globalization, Taylor & Francis. Chatterji, M & Gangopadhyay, P 2005, Economic globalization in Asia, Ashgate Publishing. Conner, T & Torimoto, I 2004, Globalization redux: New name, same game, University Press of America. ESCAP 2008, Asia- Pacific in figures 2006, viewed on 6, October, 2010, . Ferguson, KE & Mironesco, M 2008, Gender and globalization in Asia and the Pacific: Method, practice, theory, University of Hawaii Press. Glatzer, M 2005, Globalization and the future of the welfare state, University of Pittsburgh Pre. 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