Rana, P adumna B.
Wo king Pape
Economic In eg a ion in Eas Asia: T ends, P ospec s, and
a Possible Roadmap
ADB Wo king Pape Se ies on Regional Economic In eg a ion, No. 2
P o ided in Coope a ion wi h:
Asian De elopmen Bank (ADB), Manila
Sugges ed Ci a ion: Rana, P adumna B. (2006) : Economic In eg a ion in Eas Asia: T ends, P ospec s,
and a Possible Roadmap, ADB Wo king Pape Se ies on Regional Economic In eg a ion, No. 2, Asian
De elopmen Bank (ADB), Manila,
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by P adumna B. Rana
July 2006
Economic In eg a ion in Eas Asia:
T ends, P ospec s,
and a Possible Roadmap
Wo king Pape Se ies on
Regional Economic In eg a ion No. 2
O fice o Regional Economic In eg a ion
The ADB Wo king Pape Se ies on Regional Economic In eg a ion ocuses on opics ela ing o
egional coope a ion and in eg a ion in he a eas o in as uc u e and so wa e, ade and in es men ,
money and finance, and egional public goods. The Se ies is a quick-dissemina ing, in o mal
publica ion ha seeks o p o ide in o ma ion, gene a e discussion, and elici commen s. Wo king
pape s published unde his Se ies may subsequen ly be published elsewhe e.
Key wo ds: ASEAN/Eas Asian economic coope a ion and in eg a ion, business cycle synch oniza ion, ee
ade ag eemen s, policy coo dina ion.
JEL Classifica ions: F15, F36, F33.
Disclaime :
The iews exp essed in his pape a e hose o he au ho and do no necessa ily eflec he iews and policies
o he Asian De elopmen Bank o i s Boa d o Go e no s o he go e nmen s hey ep esen .
The Asian De elopmen Bank does no gua an ee he accu acy o he da a included in his publica ion and
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Use o he e m “coun y” does no imply any judgmen by he au ho s o he Asian De elopmen Bank as o he
legal o o he s a us o any e i o ial en i y.
Economic In eg a ion in Eas Asia:
T ends, P ospec s, and a Possible Roadmap
P adumna B. Rana
Senio Ad iso
O fice o Regional Economic In eg a ion
Asian De elopmen Bank
Tel: 63 632 5458
e-mail: [email p o ec ed]
July 2006
Abs ac :
This pape e iews ends in Eas Asian egionalism in he a eas o ade and in es men , money and finance,
and in as uc u e. I p esen s a ious measu es o ade and financial in eg a ion. An impo an finding o he
pape is ha inc easing ade and financial in eg a ion in he egion is now s a ing o lead o a synch oniza ion
o business cycles in a selec ed g oup o coun ies, u he enhancing he case o mone a y in eg a ion among
hese coun ies. The pape also ou lines a oadmap o Eas Asian in eg a ion.
The au ho is g a e ul o Masahi o Kawai, Sha ad Bhanda i, Seok-Hyun Yoon, Jim Tu nbull, and pa icipan s a a semina
gi en a he Ins i u e o Sou heas Asian S udies in Singapo e o hei aluable commen s and sugges ions.
1
Economic In eg a ion in Eas Asia:
T ends, P ospec s, and a Possible Roadmap
I. In oduc ion
Eas Asia’s expe ience wi h open ma ke -o ien ed de elopmen policies du ing he las ou decades is
well-known. This ma ke -o ien ed app oach in ol ed unila e al e o ms and emb aced mul ila e alism
unde he GATT/WTO amewo k and led o Eas Asia’s economic dynamism and global in eg a ion, in
andem wi h egional in eg a ion in in e na ional ade and capi al flows. Regional in eg a ion flou ished
unde he mul ila e al amewo k o ade—d i en by inc easing ma ke access and he o ce o
compe i ion. I was only in he la e 1990s ha Eas Asia began o pu sue egionalism mo e ac i ely.1
This de elopmen can be a ibu ed, as Kawai (2005) and o he s ha e men ioned, o a ious ac o s
such as g owing economic in e dependence in he egion, he slow p og ess in mul ila e alism and
popula i y o egionalism elsewhe e, and a ious lessons lea ned om he 1997–98 financial c isis.
This pape has h ee objec i es: (i) o e iew he p og ess in ma ke -led in eg a ion in Eas Asia (defined
as ASEAN+32 unless specified o he wise); (ii) o a gue ha his ma ke -led in eg a ion is now being
complemen ed by a ious go e nmen e o s and ins i u ions and will con inue o d i e economic
in eg a ion, despi e challenges such as he economic he e ogenei y o coun ies and he o -ci ed lack
o poli ical will wi hin he egion, and (iii) o ou line a possible oadmap ha he egion may adop o
enhance egional in eg a ion. Needless o say, an Eas Asian economic communi y (on he ade on )
and a single cu ency (on he mone a y on ) a e long- e m goals a bes . Howe e , ansi ional goals
o in eg a ion in a ious a eas a e beneficial in hei own igh and will con inue o d i e Eas Asian
in eg a ion o wa d.
The pape is o ganized as ollows. Sec ion II b iefly e iews he ends in Eas Asian egionalism in
he a eas o ade and in es men , money and finance, and in as uc u e and associa ed so wa e
de elopmen . Sec ion III p esen s a ious indica o s o ade (simila o Kawai, 2005 and o he s)
and financial in eg a ion. Sec ion IV explo es whe he inc eased in eg a ion has led o a g ea e
synch oniza ion o Eas Asian business cycles. Sec ion V ou lines a oadmap Eas Asian coun ies
could adop o enhance he in eg a ion p ocess. And finally, Sec ion VI summa izes he pape and
o e s some conclusions.
II. Regionalism in Eas Asia
Eas Asian egionalism, which began in he la e 1990s, has wo ea u es. Fi s , in e ms o scope
i co e s h ee a eas— ade and in es men , money and finance, and in as uc u e and associa ed
so wa e. Second, in e ms o geog aphical co e age, excep o money and finance, i has been mainly
bila e al and sub egional. Mo e ecen ly, b idges a e being buil ac oss he sub egions and p oposals
ha e also been made o es ablishing an ASEAN+3 F ee T ade A ea (FTA).
1In con as , egionalism was popula in La in Ame ica and A ica in he 1960s, d i en by he desi e o consolida e impo -subs i u ion policies in a
egional con ex . These e o s we e highly p o ec ionis and ine ec i e (la e e e ed o as “closed egionalism”).
2 ASEAN+3 includes he 10 membe s o he Associa ion o Sou heas Asian Na ions (B unei Da ussalam, Cambodia, Indonesia, Lao People’s Democ a ic
Republic, Malaysia, Myanma , Philippines, Singapo e, Thailand, and Vie Nam), People’s Republic o China, Japan, and Republic o Ko ea.

2
T ade and In es men
As men ioned, Eas Asia basically adop ed mul ila e alism in designing i s ade policy. In his sense,
he ASEAN F ee T ade A ea (AFTA) ini ia ed in 1992 was an excep ion. Howe e , wi h he signing o he
Japan-Singapo e Economic Pa ne ship Ag eemen in No embe 2002 and he F amewo k Ag eemen
on ASEAN—China FTA ha same mon h and yea , he egion’s app oach seems o ha e changed.
P esen ly, he egion is expe iencing a p oli e a ion o FTAs (see Appendix 1 o an anno a ed lis ).
Wi hin Eas Asia, eigh FTAs ha e been signed and a e p esen ly unde implemen a ion, six a e unde
nego ia ion and se en ha e been p oposed. Simila ly, be ween Eas Asia and Sou h Asia, wo FTAs
a e unde implemen a ion, eigh unde nego ia ion, and six ha e been p oposed. Many o he FTAs
in Eas Asia a e FTA Plus in he sense ha hey go beyond jus a i educ ion—in o ade acili a ion
measu es o cus oms du ies, pa ial mo emen o labo , o he opening o go e nmen p ocu emen s,
among o he s. The India-Singapo e Comp ehensi e Economic Coope a ion Ag eemen co e s no only
ade in goods bu also se ices, in es men s, and coope a ion in echnology, educa ion, ai se ices,
and human esou ces.
Money and Finance
In he a e ma h o he Asian financial c isis, Eas Asian coun ies ha e sough o p omo e close
mone a y and financial coope a ion. The e is an ascending o de o in ensi y o hese e o s in he
sense ha hey in ol e p og essi ely inc easing cons ain s on he amoun o disc e ion ha indi idual
coun ies can exe cise in he design o mac oeconomic policies. By le el o in ensi y, hese e o s ha e
anged om economic e iew and policy dialogue o es ablishing egional financing a angemen s and
e en ually owa d coo dina ing exchange a e policies.
In he a ea o economic e iew and policy dialogue, he e a e wo majo ongoing ini ia i es. Fi s , he
ASEAN Su eillance P ocess was es ablished in Oc obe 1998 o s eng hen he policy-making capaci y
wi hin he g oup. Based on he p inciples o pee e iew and mu ual in e es , his p ocess e iews
global, egional, and indi idual coun y de elopmen s and moni o s exchange a e and mac oeconomic
agg ega es, as well as sec o al and social policies. Unde his P ocess, he ASEAN Finance Minis e s
mee annually and he minis ies o finance and cen al bank depu ies mee semiannually o discuss
issues o common in e es . Second, wi h he o ma ion o he ASEAN+3 Finance Minis e s P ocess
in No embe 1999, he fi s ASEAN+3 Economic Re iew and Policy Dialogue (ERPD) was held in
May 2000. Unde he ERPD, ASEAN+3 Finance Minis e s mee annually and hei depu ies mee
semiannually. S eps ha e been aken o moni o sho - e m capi al flows and o de elop ea ly wa ning
sys ems o cu ency and banking c ises. Ini ially, Depu ies would mee o a couple o hou s bu now
hey mee o a ull day and a hal . The alue-added o egional moni o ing is ha coun ies end o be
mo e ank wi h each o he in a egional o um as hey end o ocus on issues o common in e es . An
ASEAN+3 Resea ch G oup, comp ising abou 30 hink anks om ac oss he egion, has also been
es ablished o suppo ERPD. Un il i s dissolu ion in Decembe 2005, he Manila F amewo k G oup was
ano he o um ha b ough oge he depu ies om a wide- ange o coun ies o policy dialogue.
P og ess has also been made in es ablishing egional financing a angemen s. A hei May 2000
mee ing in Chiang Mai, Thailand, he ASEAN+3 Finance Minis e s ag eed on he Chiang Mai Ini ia i e
(CMI) o expand he ASEAN Swap A angemen (ASA) o all ASEAN membe s, and o se up a ne wo k
o bila e al swap a angemen s (BSAs) among ASEAN+3 coun ies. The ASA expansion was done in
No embe 2000, and i s size inc eased om $200 million o $1 billion. In Ap il 2005, he size o he ASA
was again inc eased o $2 billion. A hei May 2005 mee ing, he ASEAN+3 Finance Minis e s announced
ha he size o exis ing bila e al swaps would be doubled and ha swaps would be signed among
3
ASEAN coun ies as well.3 To da e, ASEAN+3 coun ies ha e signed 16 bila e al swaps amoun ing o
$75 billion, almos double om a yea ago. A he May 2005 mee ing, he minis e s decided o inc ease
he pe cen age o swaps ha can be disbu sed wi hou IMF-suppo ed p og ams om 10% o 20%.
They also ag eed on a collec i e decision-making sys em o BSAs. Al hough he la e ag eemen o
some ex en complica es, he adminis a ion o he bila e al swaps, i is an impo an b eak h ough o
wo easons: (i) as men ioned in he Minis e ial S a emen , i is he fi s s ep o he ull mul ila e aliza ion
o bila e al swaps, and (ii) i is also he fi s ime ha he ASEAN+3 membe s ag eed o sac ifice a
ce ain amoun o na ional so e eign y o he common egional good. The e was u he p og ess a he
May 2006 mee ing, whe e he minis e s decided ha “all swap p o iding coun ies can simul aneously
and p omp ly p o ide liquidi y suppo o any pa ies in ol ed in bila e al swap a angemen s a imes o
eme gency” and “se up a new ask o ce o u he s udy a ious possible op ions owa ds an ad anced
amewo k o he egional liquidi y suppo a angemen (CMI mul ila e aliza ion o Pos -CMI).”4
In he a ea o exchange a e coo dina ion, aside om he conduc o esea ch unde a ious o a such
as he ASEAN Cu ency and Exchange Ra e Mechanism Task Fo ce, he Kobe Resea ch P ojec o he
Asia-Eu ope Finance Minis e s, and he ASEAN+3 Resea ch G oup, he e has ye o be a clea egional
ini ia i e. This will, howe e , undoub edly change as he in eg a ion p ocess mo es o wa d, business
cycles become mo e synch onized, and mac oeconomic policy in e dependence becomes s onge .5 In
ac , a he May 2006 mee ing, he ASEAN+3 finance minis e s endo sed a s udy on “ egional mone a y
uni s.” On 21 July 2005, he PRC and Malaysia joined Singapo e in adop ing a managed floa ing
exchange a e egime based on a cu ency baske , which sugges s he baske -pegging egime is gaining
popula i y in he egion and in due cou se could culmina e in enhanced exchange a e coo dina ion.
Fo o he ypes o financial sec o coope a ion, Eas Asia has come up wi h a numbe o ini ia i es o
de elop egional bond ma ke s. These include he APEC Bond Ini ia i e, he Asian Bond Fund (ABF)
Ini ia i e unde he Execu i es’ Mee ing o Eas Asia Pacific Cen al Banks (EMEAP), and he Asian Bond
Ma ke s Ini ia i e (ABMI) unde he ASEAN+3 Finance Minis e s P ocess. In 2003, EMEAP launched
ABF1, which had an ini ial size o $1 billion, and in es ed in US dolla -denomina ed bonds issued by
Asian so e eign and quasi-so e eign issue s. A $2 billion ABF2, which in es s in bonds denomina ed
in egional cu encies, began implemen a ion in Ap il 2005. Unde he ABMI, ASEAN+3 es ablished
se e al apex bodies —a Focal G oup wi h an Ad Hoc Suppo G oup and Technical Assis ance (TA)
Coo dina ion G oup—and ou wo king g oups ha mee egula ly. The AsianBondsOnline websi e
was launched in May 20056—de eloped by ADB, i has become a popula one-s op clea inghouse o
in o ma ion on so e eign and co po a e bonds issued in ASEAN+3 coun ies,
In as uc u e and Associa ed So wa e
In Asia, mos o he poo li e in emo e o isola ed a eas, especially in egions close o na ional bo de s.
They need o be linked o comme cial and indus ial cen e s no only wi hin hei own coun ies bu o hose
in o he coun ies in he egion and beyond as well— ia highways, ailways, po s, elecommunica ions,
and o he “ha d” in as uc u e. The “so wa e” aspec s o in as uc u e de elopmen , including ade
acili a ion, a e also impo an o he smoo h flow o a fic. G ea e connec i i y enhances ade and
in es men in eg a ion by acili a ing mo emen o goods.
3Join Minis e ial S a emen o he 8 h ASEAN+3 Finance Minis e s’ Mee ing, 4 May, 2005, Is anbul, Tu key.
4Join Minis e ial S a emen o he 9 h ASEAN+3 Finance Minis e s’ Mee ing, 4 May, 2006, Hyde abad, India.
5 Some e idence on hese ends is p o ided in Sec ion IV.
6This websi e acks de elopmen s in Eas Asia’s local cu ency bond ma ke s and p o ides de ailed p og ess epo s on he a ious ABMI ini ia i es,
among o he s.
4
The mos ad anced p og am in Asia is he G ea e Mekong Sub egion—comp ising Cambodia, Lao
PDR, Myanma , Thailand, Vie Nam, and Yunnan P o ince o he People’s Republic o China (PRC).
The six coun ies ini ia ed he p og am o sub egional coope a ion in 1992. The B unei Da ussalam-
Indonesia-Malaysia-Philippines-Eas Asian G ow h A ea (BIMP-EAGA) ini ia i e was also begun in
1992.
In Sou h Asia, a he eques o Bangladesh, Bhu an, India, and Nepal, ADB launched he Sou h Asia
Sub egional Economic Coope a ion (SASEC) P og am in 2001. The SASEC P og am p omo es economic
coope a ion in six p io i y sec o s: anspo ; ade, in es men , and p i a e sec o coope a ion; ou ism;
ene gy and powe ; en i onmen ; and in o ma ion communica ion echnology. Simila ly, in Cen al Asia
he e is he Cen al Asia Regional Economic Coope a ion (CAREC) p og am. Begun in 1997, his
p og am has ocused on egional ini ia i es in anspo , ene gy, ade acili a ion, and ade policy.
The e a e also e o s o link wes e n Sou h Asia wi h Cen al Asia unde he Sub egional Economic
Coope a ion in Sou h and Cen al Asia (SECSCA) p og am s a ed in 2003. The SECSCA P og am
p o ides anspo and ade acili a ion along he oad co ido s connec ing he Cen al Asian epublics
o he A abian Sea and he Pacific Gul ia A ghanis an. The e a e now e o s o link Eas Asia wi h
Sou h Asia h ough he Eas -Wes co ido p ojec in ol ing India, Thailand, and Myanma .
5
III. Measu es o In eg a ion
T ade In eg a ion
Tables 1 and 2 basically upda e he a ious measu es o ade in eg a ion de eloped, among o he s, by
Kawai (2005) using da a om he June 2006 In e na ional Mone a y Fund Di ec ion o T ade S a is ics
CD-Rom. Table 1 shows ha du ing he pe iod 1980 o 2005, in a egional ade among ASEAN+3
membe s inc eased s eadily om 30.2% o 38.2%.7 This le el is somewha lowe han NAFTA (45.0%)
bu significan ly lowe han ha o EU-25 (66.2%). I , howe e , we include da a om Hong Kong, China
and Taipei,China, he in a egional ade a io inc eases o 54.5%, well abo e NAFTA and close o he
EU-25 le el. In a egional ade among ASEAN coun ies has emained unchanged since 1995 while
among he Sou h Asian coun ies, i has inc eased somewha .
Table 1: In a egional T ade (as % o o al wo ld ade) 1
1980 1985 1990 1995 2000 2005
B unei Da ussalam 80.1 77.3 81.7 79.5 74.2 75.0
Cambodia 67.4 68.6 81.5 35.8 46.8
Indonesia 58.3 53.3 51.7 49.5 50.6 54.6
Lao People’s Dem. Rep 82.6 85.7 65.3 72.8 74.0
Malaysia 46.7 54.1 49.6 48.2 49.4 54.7
Myanma 50.6 42.9 58.7 72.5 62.2 74.9
Philippines 33.8 36.0 32.8 37.5 39.7 52.7
Singapo e 36.8 40.6 39.5 47.2 46.5 45.4
Thailand 38.1 42.7 42.6 43.7 44.9 49.5
Vie Nam 10.5 27.8 57.6 56.4 52.7
China, People’s Rep. o 29.4 36.2 21.3 33.7 33.1 30.0
Ko ea, Rep. o 29.2 26.7 29.1 35.4 36.6 43.6
Japan 20.7 20.3 21.2 29.9 30.9 36.8
ASEAN+ 3 30.2 30.2 29.3 37.3 37.0 38.2
Memo I ems:
ASEAN 17.9 20.3 18.8 23.9 24.5 24.0
ASEAN+3 +
Hong Kong, China + Taipei,China 34.6 37.1 43.0 51.7 51.9 54.5
SOUTH ASIA 4.6 3.2 2.9 4.0 4.2 5.5
Eu opean Union (EU-25) 61.3 59.8 67.0 67.4 66.8 66.2
NAFTA 33.8 38.7 37.9 43.1 48.8 45.0
1Fo egional g oupings, in a egional ade sha e is calcula ed using expo da a and he o mula: Xii /{(Xiw + Xwi)/2}, whe e Xii is expo o
egion i o egion i; Xiw is expo o egion i o he wo ld, and Xwi is expo o wo ld o egion i.
Sou ces: In e na ional Mone a y Fund Di ec ion o T ade S a is ics CD-Rom (June 2006), and CEIC.
8Coun y-le el da a sugges ha in a-ASEAN+3 ade a ios we e he highes o B unei Da ussalam and he newe ASEAN membe coun ies and he
lowes o PRC, Japan, and Ko ea, wi h o he coun ies alling in be ween.
12
VAR Analysis
To add ess some o he weakness associa ed wi h simple co ela ions, he VAR me hod was used
(VAR akes in o accoun dynamic in o ma ion abou he co-mo emen s o a iables, including lags
and leads). Un o una ely, VAR analysis equi es a la ge numbe o da a poin s, hus a ailable mon hly
indus ial p oduc ion da a we e used. E en hen, only eigh ASEAN+3 membe s—PRC, Indonesia,
Japan, Ko ea, Malaysia, Philippines, Singapo e, and Thailand—and he US (as an ou side coun y)
could be included in he sample. The pe iod om Janua y 1989 o Decembe 2004 was used and all
a iables we e exp essed as he fi s di e ence o logs.
Assume ha he ime-se ies p ocess o an indus ial p oduc ion index can be app oxima ed by a ec o
au o- eg ession, and conside X which is an 9- ec o indus ial p oduc ion a iable. The VAR model is
as ollows:
Xi, = αi + ∑ Ai,k Xi, -k + i, , i = 1,...,9
whe e Ai,k is a 9 x L ma ix o eg ession coe ficien s, αi is a 9- ec o cons an e m, i, is 9- ec o
inno a ions e ms, and L is he o al numbe o lags. To a oid he ade-o p oblem be ween R2 alue
and he numbe o explana o y a iables, we use he Akaike C i e ion Tes . As a esul , L = 5, o fi e
lags we e ound o be op imal o his model.
Table 4 p esen s he co ela ion coe ficien s be ween he fi ed alues o g ow h a es in he p ec isis
(Janua y 1989–June 1997) and pos c isis pe iods (July 1997–Decembe 2004). The da a confi m ha
co ela ion o indus ial p oduc ion be ween all possible pai s o Eas Asian coun ies has inc eased in
he pos c isis pe iod as compa ed wi h he p ec isis pe iod. They a e high and s a is ically significan
in coun y combina ions in ol ing Indonesia, Japan, Ko ea, Malaysia, Philippines, Singapo e, and
Thailand. The PRC appea s o be he only ou lie —i s g ow h co ela ions wi h he sample coun ies
a e s a is ically insignifican .14
14Kawai and Mo onishi (2005) also ound simila esul s.

13
Table 4: Co ela ion Coe ficien s o Fi ed Indus ial P oduc ion Index Using VAR
No e: (*) s a is ically significan a he 5% le el.
PRC = People’s Republic o China, INO = Indonesia, KOR = Ko ea, MAL = Malaysia, PHI = Philippines, SIN = Singapo e, THA = Thailand,
JPN = Japan, and USA = Uni ed S a es
On one hand, simple bila e al co ela ions had sugges ed ha co-mo emen s be ween Eas Asian and
US GDP g ow h had declined in he pos c isis pe iod. The VAR analysis, on he o he hand, sugges s
ha hey inc eased, excep in Ko ea and he Philippines. The co ela ions a e, howe e , low and
s a is ically insignifican .
In gene al, he mo e synch onized he economic ac i i y wi hin he egion, he highe he deg ee
o esilience o egional ac i i y o ou side shocks. To es he alidi y o his a gumen , he impulse
esponse unc ions de i ed om he VAR analysis we e examined. These unc ions p o ide comple e
in o ma ion abou he co-mo emen o indus ial p oduc ion a e a shock. Two ypes o shocks we e
conside ed—an ex e nal shock om he US and a egional shock om Ko ea and Thailand.15 The
magni ude o each shock was one s anda d de ia ion o he o ecas e o and, a e he ini ial one- ime
shock, he esponse pe iod gi en was 36 mon hs.
Table 5 p esen s he simple mean o he impulse esponse conside ing he absolu e le els. The able
shows ha esponses in Eas Asian coun ies o bo h ex e nal and egional shocks in indus ial p oduc ion
ha e become mo e p onounced in he pos c isis pe iod. This sugges s ha despi e he synch oniza ion
o business cycles, Eas Asian coun ies ha e no become mo e esilien o ex e nal shocks—a leas
no ye .
15These wo coun ies we e selec ed because hey we e s a is ically significan o “G ange -caused” shocks a ec ing egional economies.
P e-C isis Pe iod
PRC INO KOR MAL PHI SIN THA JPN USA
PRC 1.000 0.141 0.427 -0.110 -0.405 0.374 -0.156 0.162 0.077
INO 1.000 -0.384 0.070 -0.313 0.300 -0.186 0.299 -0.454
KOR 1.000 0.213 -0.003 0.457 0.318 0.206 -0.119
MAL 1.000 0.067 0.431 -0.205 0.188 -0.159
PHI 1.000 0.151 0.469 -0.108 0.454
SIN 1.000 0.381 0.443 -0.169
THA 1.000 0.240 -0.200
JPN 1.000 -0.513
USA 1.000
Pos -C isis Pe iod
PRC INO KOR MAL PHI SIN THA JPN USA
PRC 1.000 0.243 0.594 0.350 0.320 0.603 0.392 0.236 0.146
INO 1.000 0.741* 0.807* 0.742* 0.669* 0.714* 0.800* -0.164
KOR 1.000 0.617 0.745* 0.676* 0.747* 0.664* -0.134
MAL 1.000 0.684* 0.743* 0.723* 0.716* -0.060
PHI 1.000 0.695* 0.672* 0.711* -0.244
SIN 1.000 0.604 0.663 0.060
THA 1.000 0.551 0.204
JPN 1.000 -0.273
USA 1.000
14
Table 5: Mean o Absolu e Value o Impulse Response Using VAR
PRC = People’s Republic o China, INO = Indonesia, KOR = Ko ea, MAL = Malaysia, PHI = Philippines, SIN = Singapo e, THA =
Thailand, JPN = Japan, and USA = Uni ed S a es
Mul iple Reg ession Analysis
In o de o analyze mo e o mally he ela ionship be ween ade in ensi y and synch oniza ion o
economic ac i i y, ollowing Shin and Wang (2003) and F ankel and Rose (1998), we speci y he
ollowing model:16
co IP (i,j) = α + α1 TI (i, j) + α2 co RI (i, j) + εij
whe e co IP (i,j) e e s o he co ela ion o de- ended indus ial p oduc ion index be ween
coun y i and j a ime ,
TI (i, j) e e s o bila e al ade in ensi y index be ween coun y i and j a ime defined as
Tij
Ti + Tj whe e Tij is o al ade be ween coun y i and j a ime and Ti and Tj a e
o al ade o coun y i and j a ime espec i ely, and
co RI (i, j) is he mone a y policy coo dina ion a iable defined as bila e al co ela ion o sho -
e m eal in e es a e be ween coun y i and j a ime .
The abo e model was es ima ed by pooling da a om eigh coun ies—PRC, Indonesia, Japan, Ko ea,
Malaysia, Philippines, Singapo e, and Thailand. Mon hly da a we e collec ed om Janua y 1989 o
Decembe 2004. Fi e-yea windows we e used o calcula e he bila e al co ela ions; hence ou sample
o he eg essions was om Janua y 1993 o Decembe 2004. The sample was also b oken in o
p ec isis (Janua y 1993–June 1997) and pos c isis (July 1997–Decembe 2004) pe iods, and he model
es ima ed bo h wi h and wi hou coun y dummy a iables. The esul s a e p esen ed in Table 6.
F om Shock in US
USA JPN PRC SIN KOR MAL THA INO PHI
Be o e C isis 0.083 0.106 0.046 0.065 0.037 0.03 0.04 0.018 0.032
A e C isis 0.131 0.19 0.2 0.059 0.118 0.137 0.093 0.07 0.067
F om Shock in Ko ea
USA JPN PRC SIN KOR MAL THA INO PHI
Be o e C isis 0.055 0.104 0.088 0.072 0.11 0.029 0.051 0.035 0.047
A e C isis 0.066 0.186 0.166 0.103 0.121 0.077 0.089 0.045 0.073
F om Shock in Thailand
USA JPN PRC SIN KOR MAL THA INO PHI
Be o e C isis 0.087 0.113 0.05 0.06 0.027 0.028 0.03 0.017 0.027
A e C isis 0.103 0.135 0.086 0.048 0.049 0.044 0.043 0.031 0.043
16F ankel and Rose included only he ade in ensi y e m. This app oach leads o an endogenei y p oblem because o omi ed a iables (namely,
mac oeconomic coo dina ion). Shin and Wang do no p esen he esul s o he pos c isis pe iod.
15
The es ima ed esul s show ha bila e al ade in ensi y is s a is ically significan in explaining co-
mo emen s o indus ial p oduc ion index du ing he en i e 1993–2004 sample pe iod. Howe e , he
eg ession esul s o he p ec isis and pos c isis pe iods show ha his is ue only du ing he pos c isis
pe iod. Du ing he p ec isis pe iod, bila e al ade in ensi y did no seem o ha e any significan e ec
on business cycle synch oniza ion.
Addi ion o he mone a y policy coo dina ion a iable o he eg ession does no educe he magni ude
o s a is ical significance o he ade in ensi y a iable. Thus we can ule ou he mul icollinea i y
p oblem in he esul s. Bo h bila e al ade in ensi y and mone a y policy coo dina ion a e s a is ically
significan in explaining business cycle synch oniza ion in he Eas Asian egion. Once again, his is
ue mainly du ing he pos c isis pe iod, when he pace o mone a y and financial coope a ion picked
up and egula policy dialogue accele a ed wi hin he egion. Du ing his pe iod, he bila e al co ela ion
o eal in e es a es be ween coun ies inc eased in mos cases. This co ela ion peaked in 2002 when
many Eas Asian coun ies ollowed he mos ecen ound o in e es a e easing by he US Fede al
Rese e, which was in esponse o a synch onized global economic slowdown (Appendix 2).
Table 6: Business Cycle Co-mo emen Reg essions
Cons an TI Co RI
Pooled Reg ession wi hou Policy Coo dina ion Fac o
Jan 1993–Dec 2004 0.2413 0.0245
(10.37)** (3.41)**
Jan 1993–Jun 1997 0.1303 0.0141
(3.66)** (1.20)
Jul 1997–Dec 2004 0.3586 0.0176
(15.77)** (2.63)**
Pooled Reg ession wi h Policy Coo dina ion Fac o
1993–2004 0.1631 0.0257 1.1789
(6.23)** (3.63)** (5.24)**
1993–1997 0.1220 0.0177 0.0096
(3.03)** (1.40) (0.16)
1998–2004 0.3038 0.0180 0.1014
(10.27)** (2.73)** (2.76)**
Panel Reg ession wi h Fixed E ec s
1993–2004 0.4126 0.0118 0.1540
(6.36)** (1.44)* (4.95)**
1993–1997 0.5266 0.0003 0.1290
(6.18)** (0.03) (2.78)**
1998–2004 0.0280 0.0122 0.9600
(0.68) (1.76)** (3.19)**
* Significan a 5%.
** Significan a 10%.
16
These findings ha e impo an implica ions o mone a y coope a ion in Eas Asia. Eicheng een and
Bayoumi (1999) ha e calcula ed an op imum cu ency index o Eas Asia based on his o ical da a on
ade pa e ns, openness, and na u e o dis u bance. They ound ha he index is no e y di e en
om wha i was in Eu ope p io o he Maas ich T ea y. Bayoumi and Mau o (1999) and Plumme
(2000) ha e eached a simila conclusion o ASEAN. The e o e, ex an e Eas Asia is sui ed o a
cu ency union. Howe e , some condi ions o economic in eg a ion a e endogenous, i.e., hey a ise
a e in eg a ion s a s. This pape ’s findings ha inc eased ade and financial in eg a ion has led o
g ea e business cycle synch oniza ion in Eas Asia means ha he ongoing in eg a ion p ocess is
enhancing he incidence o symme ic shocks in he egion. This, oge he wi h he findings o F ankel
and Rose (1998), i.e., ha he le el o ade inc eases significan ly a e he o ma ion o a cu ency
union— hei ini ial finding was a h ee old inc ease, subsequen ly educed o a lowe mul iple—sugges
ha endogenous ac o s also enhance he case o es ablishing an Eas Asian cu ency union. The
egion, he e o e, appea s o be a good candida e o cu ency union based on bo h ex an e (using
his o ical da a) and ex pos (based on endogenous ac o s). The la e ac o s a e impo an because
ade expansion due o he o ma ion o a cu ency union will lead o g ea e synch oniza ion o business
cycles, which in u n educes he cos s o a union by inc easing he incidence o symme ic shocks.
V. A Roadmap o Eas Asia’s In eg a ion
Acco ding o Bela Balassa (1961), he deg ee o economic in eg a ion inc eases in a linea manne :
FTA, cus oms union, common ma ke , and economic and mone a y union. In p ac ice, howe e , no
egion in he wo ld has adop ed his ex book model. Fo example, e en in Eu ope in he 1960s, he e
we e wo acks: Eu opean Economic Communi y (EEC) and Eu opean F ee T ade Associa ion (EFTA).
The EFTA con inues o be an FTA, while EEC has mo ed om a cus oms union o a common ma ke
and is now an Economic and Mone a y Union (EMU).
A simila mul i- ack sys em may be desi able o Eas Asia—a ade ack and a mone a y and
finance ack. On he ade ack, gi en he p oli e a ion o FTAs in he egion, policy-make s should
conside he so-called “spaghe i bowl” e ec s. FTAs equi e implemen a ion o s ic ules o o igin
and o he condi ions ha inc ease adminis a i e cos s. I di e en ag eemen s ha e di e en ules o
o igin, adminis a i e cos s could be high. To a oid his, FTAs should be ca e ully designed o ensu e
compa ibili y wi h o he s. A e iew sys em may be needed. FTA membe ship could also be expanded
o e en ually es ablish an ASEAN+3 FTA. To enhance ade in eg a ion, i will also be necessa y o
add ess connec i i y issues, including in as uc u e de elopmen and ade acili a ion.
On he money and finance ack, h ee sub- acks based on he ypology de eloped in Sec ion II could
be conside ed. The sho - e m, medium- e m, and long- e m ac ions o each sub- ack—as highligh ed
in a ious ADB s udies—a e ou lined in Table 7. Wi h he ecen decision o collec i ize he decision-
making p ocess o CMI, he nex s eps a e o ully mul ila e alize he swap a angemen s by ea ma king
a po ion o o eign exchange ese es held by ASEAN+3 coun ies o financing membe s’ sho - e m
liquidi y needs. As pa o his p ocess, and also wi h a iew o educing he linkage o IMF condi ionali y,
an independen policy dialogue uni should also be es ablished o egional economic moni o ing. O e
he medium- e m, a cen alized ese e pool could be es ablished— en a i ely, an Asian Mone a y
Coope a ion Fund (AMCF). A e ha , o he esou ce-sha ing and exchange a e sub- acks, wo
app oaches a e possible— he “Eu opean” app oach and he “pa allel cu ency” app oach. Unde he
“Eu opean” app oach, o e he longe e m, a common baske peg simila o he Eu opean Mone a y
Sys em could be es ablished. Then igid Maas ich - ype con e gence c i e ia could be in oduced, and
e en ually, as a final s ep, a single cu ency could be adop ed.
17
Table 7: Roadmap o Mone a y and Financial In eg a ion in Eas Asia:
The “Eu opean” s “Pa allel Cu ency” App oaches
In o ma ion Exchange and
Su eillance Sys em
Resou ce Sha ing Exchange Ra e
Coo dina ion
Financial
Sec o
Coope a ion
Sho - e m
(wi hin he
nex wo
yea s)
Es ablish an independen
egional policy dialogue uni
o p epa e epo s o pee
e iew mee ings—an ea ly
wa ning sys em should be an
in eg al pa . Moni o egional
financial de elopmen s
(including adop ion and
implemen a ion o bes
p ac ices). De elop e ms o
e e ence and condi ionali y
o be associa ed wi h lending
om a cen alized ese e
pool ( o be es ablished in he
medium e m).
Expand he Bila e al Swap
Ag eemen Ne wo k unde he
Chiang Mai Ini ia i e (CMI).
Mul ila e alize he CMI by ea ma king
a po ion o o eign exchange
ese es o financing sho - e m
liquidi y needs o membe s.
Coope a e
on pos c isis
managemen
o he financial
sec o . Technical
assis ance
should be
p o ided o
indi idual
coun ies whe e
app op ia e.
Medium- e m
( h ee o fi e
yea s)
De elop al e na i e
condi ionali y o balance o
paymen s suppo .
Es ablish a cen alized ese e
pool— he Asian Mone a y
Coope a ion Fund (AMCF)— ha
seeks o p e en o manage financial
c ises in he egion.
The AMCF o issue a pa allel
cu ency o be called he Asia
Cu ency Uni (ACU, a weigh ed
baske o membe s’ cu encies).
Encou age ACU-denomina ed bonds
and es ablish a egional clea ing
and paymen s mechanism o ACU
ansac ions.
Explo e he
easibili y o
exchange a e
coo dina ion
by condi ioning
d awings om
he ese e pool
on exchange
a e policies.
Es ablish
gene al egional
guidelines
o p uden ial
egula ion,
enhancing
coope a ion on
hese issues
by se ing up
an Eas Asian
Banking Ad iso y
Commi ee.
Ex end he
supe iso y
unc ion wi hin
each coun y o
all ins i u ions
engaged in
banking.
Longe - e m
(mo e han
fi e yea s)
As ACU ansac ions g ow, ans e
he ACU in o sole legal ende o he
egion. Con e AMCF in o an Asian
Cen al Bank.
Es ablish a
common baske
peg simila o
he Eu opean
Mone a y
Sys em.
In oduce
Maas ic - ype
con e gence
c i e ia. Adop a
single cu ency
as las s ep.
Implemen
wha e e deg ee
o egional
ha moniza ion
o egula ions
is equi ed
o e en ually
pe mi he ull
unifica ion o
egional financial
ma ke s.
Es ablish an
Eas Asian
Financial A ea.
Key:
The “Eu opean” App oach
The “Pa allel Cu ency” App oach
Sou ces: ADB (2004) and Eicheng een (2006 o hcoming)

18
I he le el o poli ical will in he Eas Asian egion is no s ong enough o adop a Eu opean app oach,
a pa allel cu ency app oach could be conside ed. This in ol es issuance o an Asian Cu ency Uni (a
weigh ed baske o membe s’ cu encies by he AMCF) in he medium- e m o say h ee o fi e yea s.
Then he issuance o ACU-denomina ed bonds could be encou aged and a clea ing and se lemen
sys em o ACU ansac ions es ablished. In he longe e m, as he olume o ACU ansac ions
inc eases, he ACU could de elop in o he sole legal ende wi hin he egion. The AMCF could be
con e ed in o an Asian Cen al Bank.
As Eicheng een (2006 o hcoming) a gues, he appeal o he pa allel cu ency app oach is dic a ed by
economic o ces (i.e., ma ke o ces) mo e han poli ics. This is consis en wi h he g ea e emphasis
placed by Eas Asian coun ies on ma ke -led a he han policy-led in eg a ion. I also accommoda es
he ac ha he Eas Asian poli ical con ex is e y di e en compa ed wi h Eu ope. An unde lying
commi men o poli ical solida i y d o e he ansi ion o mone a y union in Eu ope. Eicheng een also
men ions ha Eu ope conside ed he pa allel cu ency app oach, bu i was abandoned in a o o he
Maas ich p ocess because o he s ong poli ical commi men ha exis ed a he ime.
Aside om being mul i- ack, Eas Asian in eg a ion could be mul i-speed as well. On each ack and sub-
ack, In Eas Asia, as we ound in Sec ion II, Indonesia, Japan, Ko ea, Malaysia, Philippines, Singapo e,
and Thailand may be eady o mo e o a highe le el o mone a y and financial coope a ion, bu he
PRC and o he s a e no qui e eady ye . Membe ship should also be expanded as app op ia e.
19
VI. Conclusions
This pape has e iewed he ends and highligh ed he p ospec s o enhancing economic
in eg a ion in Eas Asia. The majo findings a e
(i) a e he 1997–1998 financial c isis, he ma ke -d i en in eg a ion p ocess in Eas Asia is
becoming inc easingly suppo ed by public sec o ini ia i es and ins i u ional a angemen s
o enhance egionalism in ade and in es men , money and finance, and in as uc u e
and associa ed so wa e.
(ii) a ious quan i a i e measu es sugges ha ade and financial in eg a ion a e inc easing
wi hin he Eas Asian egion and he wo a e mu ually ein o cing each o he .
(iii) inc eased ade and financial in eg a ion wi hin he egion (and mone a y policy
coo dina ion) ha e led o g ea e synch oniza ion o business cycles in a selec g oup
o coun ies, mainly due o he g owing impo ance o in a-indus y ade. This, oge he
wi h he findings o a ious o he au ho s—Eicheng een and Bayoumi (1999), Bayoumi
and Mau o (1999), Plumme (2000)—sugges s ha based on bo h ex an e (in e ms o
his o ical da a) and ex pos (based on endogenous ac o s) conside a ions, i appea s
easible o es ablish a cu ency union in Eas Asia—pa icula ly among Indonesia, Japan,
Ko ea, Malaysia, Philippines, Singapo e, and Thailand.
Going o wa d, a “mul i- ack, mul i-speed” oadmap o Eas Asia based on a ious s udies
conduc ed a ADB is ou lined. The e could be a ade ack and a money and finance ack.
The ade ack could widen he web o p oli e a ing FTAs in o a seamless FTA o he en i e
ASEAN+3 egion (e en ually India could be included). On he money and finance ack, he nex
agenda i ems a e o ully mul ila e ize he CMI o e he nex h ee o fi e yea s oge he wi h
s eng hening egional su eillance, and es ablishing a cen alized ese e pool (Asian Mone a y
Coope a ion Fund). The ea e , wo app oaches a e possible— he “Eu opean” and he “pa allel
cu ency”—depending on he poli ical con ex p e ailing a he ime. The la e app oach is
“bo om-up” and mo e ma ke -o ien ed, an al e na i e o he igid and ela i ely inflexible “ op-
down” Eu opean app oach, which equi es a s ong poli ical commi men . In some sense, he
“pa allel cu ency” app oach con inues Eas Asia’s cu en ma ke -o ien ed in eg a ion.
20
Appendix 1: An Anno a ed Lis o F ee T ade Ag eemen s (FTAs)
in Eas Asia and Be ween Eas and Sou h Asia 17
A. WITHIN EAST ASIA
FTA SIGNED AND UNDER IMPLEMENTATION
● ASEAN F ee T ade A ea (AFTA)
○ Ag eemen on Common E ec i e P e e en ial Ta i (CEPT) Scheme (signed Janua y 1992 and e ec i e
Janua y 1993) equi ed cu in a i a es on p oduc s aded o 0-5% by 2003
○ Mo e han 99% o he p oduc s in he Inclusion Lis (IL) o ASEAN-6 now ha e a i s in he 0-5% ange while,
o new ASEAN membe s, abou 66% o he p oduc s ha e a i a es be ween 0-5%
○ An ASEAN Economic Communi y, cha ac e ized by ee flow o goods, se ices, in es men , labo and capi al,
is a ge ed by 2020
● Japan-Singapo e Economic Ag eemen o a New Age Pa ne ship (JSEPA)
○ JSEPA (signed Feb ua y 2002 and e ec i e No embe 2002) emo es a i s on 3,938 p oduc s impo ed om
Singapo e ( aising a i - ee impo s o 94%) and sc aps all du ies on Japanese expo s o Singapo e
○ Remo al o a i s on 6,929 impo ed i ems om Singapo e akes e ec immedia ely while he es will be
sc apped by 2010
○ The acco d includes a new in es men amewo k, cus om au oma ion, mu ual ecogni ion o s anda ds,
common ules on elec onic comme ce, and acili a ion o exchange o expe ienced wo ke s
● ASEAN-China F ee T ade A ea (ACFTA)
○ F amewo k Ag eemen signed No embe 2002 and became e ec i e July 2003
○ Ag eemen on T ade in Goods was signed in No embe 2004 and became e ec i e Janua y 2005
○ Reduc ion in a i a es o manu ac u ed goods s a ed on 20 July 2005
○ Ta i s on 7,445 kinds o goods will be cu o 5% o less by 2010 o ASEAN-6 and 2015 o newe ASEAN
membe s
○ F ui s and ege ables in bila e al ade ha e been a i - ee since Oc obe 2003 while he Ea ly Ha es Plan
has allowed a i educ ion in 570 kinds o p oduc s since Janua y 2004
● Ko ea-Singapo e F ee T ade Ag eemen (KSFTA)
○ Nego ia ions o KSFTA ha began in No embe 2002 we e concluded No embe 2004. The FTA became
e ec i e Ma ch 2006
○ Unde KSFTA (expec ed o be e ec i e in he second hal o 2005), Singapo e will emo e a i s on all i ems
and Ko ea will sc ap du ies on 91.6% o all p oduc s o e he nex 10 yea s
○ Singapo e will also ha e enhanced access o Ko ean educa ion, logis ics, and en i onmen al se ices while
Ko ea will gain access in o Singapo e’s cons uc ion, logis ics, and p o essional se ices
● Japan-Malaysia Economic Pa ne ship Ag eemen (JMEPA)
○ In Decembe 2002, Malaysia p oposed he JMEPA
○ Ag eemen s a ed Janua y 2004
○ FTA was signed Decembe 2005
○ Malaysia will immedia ely emo e a i s on all pa s impo ed o local ca p oduc ion and du ies on mos
finished ehicles will be sc apped by 2010
● Laos-Thailand P e e en ial T ade Ag eemen
○ FTA unde implemen a ion since 1991
● PRC-Hong Kong Comp ehensi e Economic Pa ne ship Ag eemen
○ FTA unde implemen a ion since Janua y 2004
● PRC-Thailand F ee T ade Ag eemen
○ FTA unde implemen a ion since Oc obe 2003
17FTAs signed by and being nego ia ed by Eas and Sou h Asian coun ies wi h o he coun ies a e no included.
21
FRAMEWORK AGREEMENT SIGNED AND FTA UNDER NEGOTIATION
● ASEAN-Japan Comp ehensi e Economic Pa ne ship (AJCEP)
○ Japan p oposed in Janua y 2002 he es ablishmen o AJCEP
○ Following he F amewo k o AJCEP (signed Oc obe 2003), consul a ions o he libe aliza ion o ade in
goods and se ices, and in es men s a ed in 2004 and nego ia ions began in Ap il 2005 o conclude a e 2
yea s
○ Implemen a ion o AJCEP, including FTA, will be comple ed by 2012, aking in o accoun he economic
le els and sensi i e sec o s in each coun y, including allowing addi ional fi e yea s’ ime o newe ASEAN
membe s
● Japan-Philippines Economic Pa ne ship Ag eemen (JPEPA)
○ In May 2002, he es ablishmen o a wo king g oup was p oposed o s udy he possibili y o an EPA be ween
Japan and he Philippines
○ In Decembe 2003, bo h sides decided o s a nego ia ions o JPEPA in ea ly 2004
○ Ag eemen s eached No embe 2004 in ol e comp ehensi e educ ion o elimina ion o a i s on indus ial
p oduc s and ag icul u e, o es y, and fishe y p oduc s
○ Ta i s on almos all indus ial p oduc s will be emo ed wi hin 10 yea s om he day he JPEPA becomes
e ec i e
● ASEAN-Ko ea F ee T ade A ea (AKFTA)
○ Nego ia ions o AKFTA began in Feb ua y 2005 and a e expec ed o be comple ed by end 2006
○ AKFTA will co e ade in goods, se ices, in es men , and o he coope a ion
○ 80% o p oduc s will be a i - ee by 2009 while he emaining 20% will be subjec o nego ia ions in conside a ion
o new ASEAN membe s’ s a us
● Japan-Ko ea F ee T ade Ag eemen (JKFTA)
○ In July 2002, Japan and Ko ea o med a Join S udy G oup o app aise he es ablishmen o JKFTA
○ Launching o he nego ia ions o JKFTA was done on Oc obe 2003 and conclusion was expec ed by 2005
○ Nego ia ions began in Decembe 2003 bu we e s alled a e he 6 h ound (No embe 2004) due in pa o
di e ences o e he deg ee o which hey should open he ag icul u al ma ke
○ No da e ye has been se o he 7 h ound o alks
● Japan-Thailand Economic Pa ne ship Ag eemen (JTEPA)
○ In No embe 2001, Thailand p oposed an FTA o Japan
○ Thailand and Japan decided o begin consul a ions o a b oade JTEPA in Ap il 2002 and a wo king g oup was
o med o he pu pose
○ In June 2003, a ask o ce was se up o expedi e he p ocess o JTEPA
○ Nego ia ions s a ed in Feb ua y 2004
○ Ag eemen was eached on he ag icul u al sec o , while di e ences emain in a eas such as s eel, au omobiles,
au o pa s, in es men and ade in se ices
● Japan-Indonesia Economic Pa ne ship Ag eemen
○ Nego ia ion launched in June 2005
FTA PROPOSED
● Eas Asia F ee T ade A ea (EAFTA)
○ EAFTA was p oposed by Eas Asia Vision G oup a he 5 h ASEAN+3 Summi in No embe 2001
○ The 6 h ASEAN+3 Summi asked Economic Minis e s o s udy and o mula e op ions on he g adual o ma ion
o EAFTA
○ In No embe 2004, he 8 h ASEAN+3 Summi Economic Minis e s decided o se up an expe g oup o conduc
a easibili y s udy on EAFTA (exis ing and p oposed bila e al ading a angemen s will se e as building
blocks)
● PRC-Japan-Ko ea F ee T ade A ea
○ In No embe 2002, he 3 coun ies ag eed o join ly s udy he economic e ec s o a possible FTA among
hem
○ A s udy g oup was o med which submi ed a epo in Oc obe 2003 suppo ing he es ablishmen o an
FTA and ecommending he conduc o a sec o -o ien ed s udy ocusing on ag icul u e, elec ic machine y
manu ac u ing, and au omobile
○ In May 2005, he h ee coun ies called o u he s udies on he FTA and o consul a ions o explo e a legal
amewo k conce ning in es men
○ The h ee coun ies a e now conside ing in ol ing go e nmen o ficials in he join s udy whose u u e emains
unce ain un il ade and in es men issues a e esol ed