1. The document discusses regional challenges in Asia from the perspective of the OECD, focusing on trends in global and Asian economic integration driven by trade, investment, and global value chains. 2. It notes that while Asian integration was initially market-driven, the number of free trade agreements in Asia has risen sharply in recent years, though financial integration remains limited. 3. Challenges to further Asian regional integration include promoting cooperation across the various regional frameworks and balancing regional and global trade regimes.

1. 13 April 2016
Randall S. Jones
Head, Japan/Korea Desk, OECD
OECD Global Parliamentary
Network Meeting in Tokyo
Regional Challenges – A View from
Asia

2. 1. The slowdown in world trade: what is
causing it?
2. Cost and benefits of regional integration.
3. Asian integration was initially driven by
trade and investment, creating global
value chains.
4. The number of free trade agreements in
Asia have risen sharply in recent years.
5. Challenges to promote Asian regional
integration.
2
Outline of presentation

3. Dramatic slowdown in global trade
growth
3
Note: World trade is the volume of goods plus services. World GDP growth is measured at purchasing power parities.
Source: OECD Economic Outlook Database.
Growth of global trade volumes and GDP

4. 4
The ratio of world trade growth to GDP growth
has been unusually low in recent years
Source: OECD, Economic Outlook Database.

5. 1. Slower growth in China’s trade.
2. Weaker investment, which is more
trade-intensive.
3. Sluggish trade within the euro area.
4. Less scope for further trade
liberalisation.
5. Protectionist trade policies?
6. The rise of 3-D printing?
5
Reasons for the slowdown in
world trade growth

6. 6
China’s world trade growth has
slowed sharply since 2011
Source: OECD, Economic Outlook Database.

7. 7
China’s share of world trade volume
edged down in 2015
China’s trade as a per cent of the world total
Source: OECD, Economic Outlook Database.

8. Rebalancing in China is dragging
on global demand
8
Composition of growth in China
In China, growth is
slowing and
rebalancing from
manufacturing to
services
This is proving to be
challenging, along
with managing
financial risks
Note: Manufacturing (secondary) includes construction.
Source: Chinese National Bureau of Statistics.

9. 9
Global investment has been weak
since the 2008 crisis
Ratio of global investment to GDP (Index: 2007=100)
Source: OECD, Economic Outlook Database.

10. 80
90
100
110
120
130
140
150
80
90
100
110
120
130
140
150
t 2 4 6 8 10 12 14 16 18 20 22 24 26 28
t=1973Q4 t=1981Q4 t=2000Q3 t=2008Q1
Quarters since the peak
10
The rebound in business investment in the
OECD area since 2008 has been sluggish
Business investment in different cycles
Cyclical peak in OECD real business fixed investment=100 (date of peak indicated)
Source: OECD, Economic Outlook database.

11. 11
Trade within the euro area has been
slow to recover since the 2008 crisis
Index: 2008=100
Source: OECD, Economic Outlook Database.

12. 12
The ratio of intra-euro imports to euro
area GDP has stagnated since the crisis
Index: 2007=100
Source: OECD, Economic Outlook Database.

13. 13

14. Benefits from connectivity & wider opportunities
• Gains from freer and less costly movements of goods, services,
capital, information and people
• Efficiency gains from comparative advantage
• Gains from scale economies and network externalities
Managing costs of regional integration
• Costs of industrial adjustment (temporary unemployment)
• Negative spillovers and externalities
Promotion of regional peace and stability
• Deeper economic integration does not guarantee political peace
and security, but reduces the likelihood of conflict
14
Benefits and costs of integration
in the Asia-Pacific region

15. The cost of isolation and autarky:
North Korea
15

16. Comparison of North and
South Korea in 2014
1. North Korean exports to the South in Panel A, and South Korean exports to the North in Panel B.
Source: Statistics Korea.
(A) (B) Ratio (B/A)
North Korea South Korea
Population (millions) 24.7 50.4 2.0
Gross National Income (trillion won) 34.2 1 496.6 43.7
Gross National Income per capita (million won) 1.4 29.7 21.4
Total trade (billion US$) 7.6 1 098.2 144.3
Exports¹ 3.2 572.7 181.2
Imports 4.5 525.6 118.1
Of which: inter-Korean exports 1.2 1.1 0.9
Industrial statistics (2014)
Power generation (billion kWh) 21.6 522.0 24.2
Steel production (million tonnes) 1.2 71.5 58.6
Cement production (million tonnes) 6.7 47.0 7.0
Agricultural production (2012)
Rice (million tonnes) 2.2 4.2 2.0
Fertilizer (million tonnes) 0.5 2.3 4.6
16

17. 1. The slowdown in world trade: what is
causing it?
2. Cost and benefits of regional integration.
3. Asian integration was initially driven by
trade and investment, creating global
value chains.
4. The number of free trade agreements in
Asia have risen sharply in recent years.
5. Challenges to promote Asian regional
integration.
17
Outline of presentation

18. 1. International production, trade and investments are increasingly
organised within so-called GVCs, where the different stages of the
production process are located across different countries.
2. The growth of GVCs has increased the interconnectedness of economies
and led to a growing specialisation in specific activities and stages in
value chains, rather than in entire industries.
3. There are two types of linkages to GVCs:
• Using foreign inputs for export production (backward linkages).
• Providing inputs for foreign countries for their export production (forward
linkages).
4. Over 70% of global trade is in intermediate goods and services and in
capital goods. The income created within GVCs has doubled over the last 15
years.
5. GVCs are becoming increasingly influential in determining future trade
and FDI patterns, as well as economic growth opportunities.
18
Global value chains (GVCs)

19. 19
There is significant variation in
countries participation in GVCs
Note: The index is calculated as a percentage of gross exports and has two components: the import content of
exports and exports of intermediate inputs used in third countries.
Source: OECD (2013), Implications of Global Value Chains for Trade, Investment, Development and Jobs.

20. 1. Market size: The larger the size of the domestic market, the lower the
share of foreign inputs in its exports (countries with large markets can
draw more on domestically-produced inputs) and the larger the share of
intermediate products in its exports.
2. Level of development: The higher the per capita income the higher is
its involvement in GVCs. Developed countries tend to source more from
abroad and sell a have a higher share of intermediate products in their
exports.
3. Industrial structure: The higher the share of the manufacturing sector
in GDP the higher the share of foreign inputs in its exports and the lower
the share of intermediate products in its exports.
4. Location: GVC activity is organised around large manufacturing hubs—
the larger the distance to the main manufacturing hubs in Europe, North
America and Asia, the lower the share of foreign inputs in its exports,
suggesting that there is a premium to locating close to large “headquarter”
economies.
20
Countries participation in GVCs
depends in part on structural factors

21. Factors that promote involvement in GVCs:
• Openness to inward FDI.
• High-quality logistics.
• Measures to facilitate trade
• Appropriate intellectual property protection
• Low import tariffs
• Engagement in regional trading
agreements
21
Involvement in GVC also
depends on a countries’ policies

22. 1. The slowdown in world trade: what is
causing it?
2. Cost and benefits of regional integration.
3. Asian integration was initially driven by
trade and investment, creating global
value chains.
4. The number of free trade agreements in
Asia have risen sharply in recent years.
5. Challenges to promote Asian regional
integration.
22
Outline of presentation

23. • As noted above, economic integration in Asia has
been driven by trade and investment, leading to the
development of regional supply chains and
production networks. This has led to the emergence
of Factory Asia.
• In recent years, integration has been accelerated
through regional free trade and investment
agreements.
• Asian regionalism has distinctive features—open,
multi-speed, multi-track, pragmatic, and bottom-up.
23
Economic integration in Asia driven
by market forces and FTAs

24. 24
The number of FTAs in Asia has risen
sharply
Note: Does not include FTA initiatives only proposed. Refers to FTAs either under negotiation, signed but not in
effect, or in effect. Numbers are cumulative as of January 2013. Asia excludes Oceania (Australia and New Zealand).
Source: ADB, Asia Regional Integration Center.

25. 25
The number of FTAs has increased in
all countries
Source: ADB, Asian Regional Integration Center.

26. 26
AFTA-ASEAN Free Trade Area, APEC--Asia-Pacific Economic Cooperation; ASEM--Asia Europe Meeting; CEPT--Common External
Preferential Tariff; EAS-- East Asia Summit ; FTAAP—Free Trade Area of Asia and the Pacific; RCEP—Regional Economic
Comprehensive Partnership; TPP =Trans-Pacific Partnership.
Source: ADB, Asian Regional Integration Center. Notes: (*) Under Negotiation; (**) Proposed.
Main regional economic cooperation
forums and FTAs involving Asian countries

27. Trans-Pacific Partnership
27Source: http://dfat.gov.au/trade/agreements/tpp/Documents/tpp-overview.pdf.
27

28. • Stalemate in the Doha Round
• It is a coalition of the willing
• It is based on the rule of law and a
democratic form of government
28
Why the Trans-Pacific Partnership?
Source: The Government Headquarters for the TPP, Cabinet Secretariat, Tokyo.

29. 1. Evolution of global economic integration.
2. Flow of investment, technology, goods and services,
and people.
3. New means of economic activity: Electronic
commerce is now indispensable.
4. Expansion of global supply chain. Stagnant global
economy caused by diminishing demand
5. Volatility and gloomy prospect of global economy
6. In case of Japan, aging society and shrinking
population
29
Why the TPP now?
Source: The Government Headquarters for the TPP, Cabinet Secretariat, Tokyo.

30. 1. Korea, Taiwan Taipei, the Philippines,
Thailand, Indonesia and Columbia are
indicating interest.
2. China?
3. Two years since signature (February 2016)
if all Parties complete necessary domestic
procedures.
4. If not, six countries comprising 85% of TPP
economies, after two years.
5. U.S.?
30
Details concerning the TPP

31. The TPP will require gradual reform
of Japan’s agricultural sector
31
1. Producer support is the annual monetary value of gross transfers from consumers and taxpayers arising from
policies that support agriculture, regardless of their nature, as a per cent of the value of gross farm receipts.
Source: OECD Economic Survey of Japan, 2015.
Producer support in 2011-13¹

32. Japan’s elderly farm workforce creates an
opportunity for fundamental reform
32
Source: Ministry of Agriculture, Forestry and Fisheries, 2010 Census of Agriculture and Forestry.
83% of farmers were over 60 years old in 2010

33. 33
The Korea-China FTA was signed
in 2015

34. 1. The slowdown in world trade: what is
causing it?
2. Cost and benefits of regional integration.
3. Asian integration was initially driven by
trade and investment, creating global
value chains.
4. The number of free trade agreements in
Asia have risen sharply in recent years.
5. Challenges to promote Asian regional
integration.
34
Outline of presentation

35. 35
Estimates of world GDP in 2050:
Asian Century Scenario
Source: Asia 2050: Realizing the Asian Century, Asia Development Bank.

36. 36
Estimates of world GDP in 2050:
Middle Income Trap Scenario
Source: Asia 2050: Realizing the Asian Century, Asia Development Bank.

37. 37
A comparison of intra-regional trade
shares

38. 1. Financial integration remains more limited than
trade and investment integration due to regulatory
controls on financial services opening and on
international capital flows
2. Varying degrees of financial market development and
deepening also prevent Asia-wide financial market
integration
3. Nonetheless, intra-regional financial integration
through portfolio investment has been rising—partly
due to policy efforts to develop Asian-currency bond
markets
4. Asia also faces the issue of intra-regional exchange
rate variability
38
Financial integration in Asia is much
more limited than in Europe

39. 39
AFTA-ASEAN Free Trade Area, APEC--Asia-Pacific Economic Cooperation; ASEM--Asia Europe Meeting; CEPT--Common External
Preferential Tariff; EAS-- East Asia Summit ; FTAAP—Free Trade Area of Asia and the Pacific; RCEP—Regional Economic
Comprehensive Partnership; TPP =Trans-Pacific Partnership.
Source: ADB, Asian Regional Integration Center. Notes: (*) Under Negotiation; (**) Proposed.
Main regional economic cooperation
forums and FTAs involving Asian countries

40. 40
Larger regional FTAs lead to
larger benefits

41. 1. RCEP: ASEAN+6 initiative with ASEAN centrality; special &
differential treatment for LDCs; US excluded
2. TPP: APEC initiative; US-driven; high-standard liberalisation;
China excluded for now
3. Both RCEP and TPP are open to new members
4. Developing or emerging economies ready for a certain degree of
liberalization can join RCEP first; those that can liberalize more
can join TPP at a later stage
5. An Asia-Pacific FTA (FTAAP) can be forged by (1) combining
RCEP and TPP, (2) convergence of the two, or (3) absorption of
advanced members of RCEP by TPP (while RCEP may continue to
draw other Asian developing countries)
41
Two tracks in Asia: RCEP and TPP
Masahiro Kawai and Ganeshan Wignaraja. “Patterns of Free Trade Areas in Asia.” Policy Studies 65 (2013), East-
West Center.

42. 1. Mega regionals (RCEP, TPP, etc) and the global
multilateral system (WTO) are likely to continue to
coexist for the foreseeable future
2. The key is how best to pursue coherence between them,
creating a path towards multilateralization
3. A step is needed to make regional trade rules in mega-
regionals and mega cross-regionals compatible with
multilateral trade rules under the WTO
4. Though FTAs discriminate against third parties and
diverge from one another, they do have some common
features, for instance in anti-dumping, SPS and TBT
5. Ultimately, common rules in mega regionals should be
established through multilateral harmonization
42
Multilateralising regionalism
Source: Richard Baldwin and Masahiro Kawai. “Multilateralizing Asian Regionalism.” ADBI Working Paper No. 431
(August 2013).

43. 43
OECD Better Policies Series: Japan 2016
http://www.oecd.org/japan/japan-boosting-growth-and-well-being-in-an-ageing-society-9789264256507-en.htm
OECD
OECD Economics
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