Possibilities for Northeast Asian Integration and Practical Measures

Cho Hyun, Ambassador for Energy and Resources at the Ministry of Foreign Affairs and Trade, graduated from Yonsei University with a degree in Political Science and International Relations and served as Director-General of the International Economic Affairs Bureau at the Ministry of Foreign Affairs and Trade and Deputy Chief of Mission to the UN.

Abstract

Northeast Asian integration can offer significant incentives to all three countries in the region. The objectives of Northeast Asian integration are economic prosperity and security. Given the already high degree of economic interdependence in the Northeast Asian region, regional integration would yield substantial economic benefits. From a security perspective, regional integration in Northeast Asia is beneficial to China, Japan, and South Korea. China and Japan can reduce mutual security threats and mitigate arms races through regional integration. South Korea can also ensure its security through regional integration, and furthermore, regional integration could greatly aid the process of Korean reunification, similar to how Germany achieved peaceful reunification through the European Union (EU).

A Free Trade Agreement (FTA) among South Korea, China, and Japan can serve as a means for Northeast Asian integration. The EU's integration began with the joint management of coal and steel, and was driven by trade liberalization and the introduction of a common currency. The conclusion of an FTA liberalizing goods trade, investment, and services markets among South Korea, China, and Japan will be a means for long-term integration.

Regarding strategies for concluding an FTA among the three Northeast Asian countries, there are three main approaches: 1) a step-by-step strategy where South Korea acts as an intermediary, pursuing bilateral FTAs with Japan and China; 2) a grand bargain approach for a comprehensive FTA among South Korea, China, and Japan; and 3) an approach pursuing substantive integration through sectoral integration. Considering the economic disparity and mutual distrust between China and Japan, a practical (de facto) integration approach, building cooperation across various sectors and integrating based on this sectoral cooperation, is more realistic than legal (de jure) integration such as concluding an FTA.

The role of the United States is crucial in the process of Northeast Asian integration. The EU's integration was possible because the United States played the role of guarantor of peace in Europe. If the United States, which has mutual defense treaties with South Korea and Japan, plays a similar role in Northeast Asia, it would greatly contribute to the process of Northeast Asian integration. South Korea's role in the process of cooperation is important. South Korea stands to gain the most incentives from Northeast Asian integration, and it is difficult for Japan and China to pursue direct integration due to their high mutual distrust. If South Korea acts as a facilitator, strengthening cooperation in sectors where mutual cooperation is possible among South Korea, China, and Japan, trust among the three countries will be enhanced, paving the way for integration in Northeast Asia.

Discussion

Concept of Integration

The concepts of regional cooperation and regional integration must be distinguished. Cooperation refers to market transactions, tariff negotiations, etc., pursued for the sake of profit without a teleological objective, whereas integration embodies a teleological objective. For instance, discussions on the formation of an Asian Monetary Fund can be considered cooperation, not integration. The EU represents regional integration, while the North American Free Trade Agreement (NAFTA) is regional cooperation. Integration must go beyond mere profit-seeking and encompass a teleological objective. It requires deepening the scope and depth of policy coordination and a shared vision for co-creation. Multilateral cooperation and regional integration must be differentiated.

Scope of Integration

There is a debate on whether the scope of integration should be confined to Northeast Asia or encompass East Asia, including Southeast Asia. Proponents of including Southeast Asia argue that limiting it to Northeast Asia would make it difficult to secure demand for economic integration and stable investment space. Including Southeast Asia would allow for the active utilization of the ASEAN+3 Summits, which have been ongoing since 1997, in discussions on regional integration. Those who advocate for confining it to Northeast Asia point to the low intra-regional trade share in ASEAN FTAs, with less than 10% of trade actually benefiting from tariff concessions as agreed upon in the FTAs. In contrast, intra-regional trade among the three Northeast Asian countries is 25%. Considering that early European integration had an intra-regional trade share of 19%, the foundation for economic integration is considered to be laid. Furthermore, for regional integration to evolve beyond economic integration, political visions must be shared, and sharing a vision is much easier among the three Northeast Asian countries than within a larger Asia that includes Southeast Asia.

Regardless of the assumed geographical scope of the region, successful regional integration in Northeast Asia requires presenting a vision that considers the United States from the outset. While China will grow significantly in the future, the United States will remain a powerful force. Although the United States is a Pacific power geographically, it inevitably plays a crucial role in the integration of the Asian region. Recognizing the U.S. role as a peace guarantor in the region is essential for successful regional integration.

Necessity and Means of Integration

While emphasizing the necessity of integration by pointing to both economic and security dimensions, the discussion focuses solely on economic means for integration. Economic cooperation may actually be difficult, as national economic interests are likely to conflict. Economic losses are tangible, but the benefits of economic integration are difficult to quantify. Ultimately, it is difficult to drive integration solely on economic logic.

Approaching integration from a security perspective may be more persuasive. The European Coal and Steel Community (ECSC), which formed the cornerstone of the EU, also originated from security logic. European countries agreed to jointly manage coal and steel to check Germany's power. The economic benefits that incidentally followed from this joint management created a spillover effect, leading to regional integration. To pursue regional integration in Northeast Asia, it is necessary to identify the security factors that can drive integration in the region and propose means to achieve it, rather than focusing on economic necessity. Consideration should be given to what could serve as the equivalent of the ECSC for the three Northeast Asian countries.

The most significant security factor in Northeast Asia is the rise of China. Due to China's recent rise, South Korea and Japan are experiencing security anxieties and are strengthening their bilateral alliances centered around the United States. Integration is necessary from a security standpoint because there is a security dilemma that cannot be resolved by U.S.-centered bilateral alliances alone. Regional integration serves as a complementary measure to resolve this security dilemma, thus providing a long-term reason for pursuing integration, even if the economic benefits are currently uncertain.

Substantive (de facto) vs. Legal (de jure) Integration

Substantive (de facto) integration refers to the integration of markets and businesses, while legal (de jure) integration refers to the integration of national governments. The necessity of integration arises from the perspective of legal integration, not substantive integration. Substantive integration occurs in the market without government initiative. The reason legal integration is needed beyond the substantive level is due to the conflicts that arise during the process of substantive integration. Markets pursue substantive integration for common benefit, but simultaneously generate inevitable conflicts. Governments are necessary to resolve these conflicts.

Financial Cooperation

Following the recent agreement on contribution shares in the Chiang Mai Initiative, the momentum for regional financial cooperation in East Asia has accelerated. Based on Europe's experience, financial integration typically follows trade integration. However, in East Asia, financial integration is preceding trade integration. This sequence is rather natural in East Asia. The reason financial integration could proceed first in East Asia is the shared experience of 'crisis.' Having experienced the 1997 Asian financial crisis, East Asian countries developed a motivation to jointly resolve crises through cooperation, which has provided impetus for accelerating financial integration among them. In contrast, trade integration may be more difficult due to the lack of such a sense of urgency. Moreover, FTAs can be concluded with countries outside the East Asian region. Therefore, it may be more advantageous to pursue integration based on cooperation in the exclusive monetary sector rather than pursuing Northeast Asian integration through FTAs.

Recently, an agreement on contribution shares was reached within the Chiang Mai Initiative on May 3rd. The agreement on contribution shares in a regional multilateral organization is significant as it can serve as a precedent for other East Asian regional organizations. The contribution shares were decided as 32% (China): 32% (Japan): 16% (South Korea): 20% (ASEAN), which will play a role in the institutionalization of East Asian cooperation as a good precedent for future decision-making processes.

European and East Asian Histories

The histories of Europe and East Asia differ significantly. The EU emerged from 400 years of warfare. While regional integration in Europe arose as a result of power struggles since the modern era, East Asia has been separated from a China-centric integration for less than 200 years. To achieve integration based on security logic like in Europe, there would need to be more experiences of conflict.

In East Asia, integration and division coexist in terms of power, interest, and identity. The situation is particularly complex in terms of identity. East Asia shared an integrated identity until the 19th century, after which it fragmented into individual states in the modern era. Unlike Europe, the forces of integration and division are intertwined. It is crucial to understand these characteristics of the East Asian region to pursue integration in an East Asian manner.

Presenter

: Cho Hyun

Moderator: Ha Young-sun

Discussants

Koo Min-kyu

Kim Byung-kook

Kim Yang-hee

Sohn Yeol

Lee Sook-jong

Lee Seung-ju

Lee Yong-wook

Lee Jae-seung

Choi Tae-wook