Growing interdependency in East Asia (source:Ministry of Economy,Trade and Industry)

Imagine the following scene from a year in the future: Workers in a Thai factory are assembling cars developed under the initiative of a Japanese automaker. They are putting together parts from across East Asia-Philippine-made meters, South Korean electronic control devices, Malaysian-made air conditioners, engines built in Indonesia, Chinese-made wires and steel plates imported from Japan-to make a car that comes with the tag "made in East Asia."

This scenario could materialize when the Association of Southeast Asian Nations (ASEAN) concludes FTAs with Japan, China and South Korea to form a single market with no tariffs.

Parties to FTAs are also expected to conclude agreements to encourage personnel and cultural exchanges across national borders within the single market. As a result, it will be a matter of course for businesspeople who make frequent overseas business trips to hold multiple-journey passports that allow them to come and go as many times as they please. Business will be conducted in an Asian common currency, the so-called acu (Asian currency unit), which would be analogous to the euro in the European Union.

FTAs gradually lower the economic barriers that separate countries. There are currently nearly 190 FTAs worldwide. Since the early 1990s, after the collapse of the Cold War structure, both Europe and the United States have begun to move toward integrating their markets-Europe with the expansion of the European Union, and the United States with the formation of the North American Free Trade Area with Canada and Mexico.

But Asia has remained virtually an FTA vacuum.

The single most significant factor behind Asia's failure to catch up with the trend is attributed to Japan, which is blamed for neglecting to devise an effective Asian trade strategy despite its overwhelming predominance over the region as an economic power.

During the 1990s, which is dubbed "the lost decade," the competitiveness of Japanese industries declined. From the standpoint of trade, it was also a time when Japan and Asia lagged behind the global trend to integrate regional economies.

But regardless of an absence of an effectual trade policy, the market went ahead and accelerated economic interdependency within East Asia. East Asian regional trade (the total exports of regional countries) grew 3.2-fold in the 10 years up to 1991, and jumped 2.1 times in the next decade, according to a 2003 white paper on trade.

As a result, in the past 10 years, the greater part of Japan's trade shifted from the United States to East Asia, and the economic attraction between Japan and East Asia became stronger than ever.

The trend of growing interdependency can be interpreted as a virtual process to lay the groundwork for economic integration.

Businesses in Japan, China and South Korea share strong expectations for FTAs that support such moves. The ratio of businesses supporting a tripartite FTA was 85 percent in China, 79 percent in Japan and 71 percent in South Korea, according to a joint study released Oct. 7 at the Japan-China-South Korea summit in Bali, Indonesia.

So far, China is the most active of all Asian nations to advance FTAs. In November 2002, Japan proposed to ASEAN the establishment of a comprehensive economic cooperation agreement. At long last, this month, Japan and ASEAN signed a framework agreement one year after China.

East Asia is a global growth center. The emergence of a tariff-free single East Asian economic bloc would enable Japanese companies to drastically cut costs and bolster earnings because they could rearrange their production bases to best meet their needs. In short, Japan can benefit from Asia's "vitality" to activate its economy.

That's not all. Through FTAs, Japan can open its doors even wider, to the rest of Asia, not only in terms of products and money flow but also in the area of personnel exchanges, and can spur Asian economic advancement and raise the standard of living of its Asian neighbors. This process promotes Asian political stability and contributes to the expansion of the regional market.

By "opening up"to Asia, Japan can attain Asian prosperity as well as its own. The FTA framework clearly shows such possibilities.

CHRONOLOGY OF MOVES CONCERNING FREE TRADE AGREEMENTS IN EAST ASIA

Nov. 2001: ASEAN and China agree on completion of an FTA within 10 years.
Jan. 2002: Japan concludes an FTA with Singapore. Japan proposes the conclusion of an FTA-based "comprehensive economic partnership agreement" with ASEAN.
Nov. 2002: ASEAN and China sign a framework agreement on "comprehensive economic cooperation." China calls for a joint study toward the conclusion of an FTA with Japan and South Korea.
March 2003: ASEAN and Japan launch a government-level committee to study FTAs.
Oct. 2003: ASEAN adopts a declaration aimed at achieving economic integration in 2020. A Japan-China-South Korea summit adopts a joint declaration calling for the conclusion of an FTA covering the three countries for the first time. Japan and ASEAN sign a framework agreement for "economic partnership."