Embargo Morning paper May 29
Release Date May 28
Contact Information Kim Young-min; International Media Relations; 02- 2150-2450
Kim Tae-hoon; Trade Policy Coordination Division;
02-2150-7652
Title: Importance of ASEAN Economy & Current Status of Economic Cooperation with ASEAN
This release is to improve the understanding of the ASEAN economy, ahead of the ‘Korea-ASEAN Commemorative Summit’ to be held in Jeju island on June 1-2 and the ‘Korea-ASEAN Economic Cooperation Forum’ on June 1.
I. Economic trend and growth potential in ASEAN
1. Macroeconomic trend
The ASEAN economy grew at an annual average of 5 to 6 percent in this century, backed by the increase in export and foreign direct investments (FDI). The volume of trade recorded an 18 percent increase annually, with US$7 billion annual trade balance, before the current global economic crisis.
The investments in ASEAN have surged at an annual average rate of 37 percent since 2003.
The global recession is expected to negatively affect a trade balance and FDI in the region, which may, in turn, bring an economic downturn to the region. However, if the global economy rebounds, ASEAN can grow faster than we expected.
2. Growth potential
(1) Purchasing power as a big market
The population and average annual economic growth of the ASEAN member states exceed those of the EU, NAFTA, and MERCOSUR. ASEAN is expected to emerge as a big economic bloc if it is integrated into the ASEAN Free Trade Area (AFTA), an EU-type economic community. The integration will help ASEAN improve industrial efficiency and competitiveness. However, a large economic gap among ASEAN member states will be a hurdle for regional integration. Upgrading regulations and institutions of the member countries will help close the gap and move towards integration.
(2) Attracting foreign investment as a production base
To promote foreign investment, ASEAN has continued since the 1997 Asian financial crisis to improve laws governing trade and investment, offer incentives to foreign investors, and pursue free trade deals and investment agreements. ASEAN member states, Korea, China, and Japan agreed to create the US$120 billion multilateral currency swap pool under the Chiang Mai Initiative (CMI) at the ASEAN+3 Finance Ministers’ Meeting held on May 3. The increase in consumer prices and wages, and the strong yuan are likely to facilitate the movement of production facilities in China to ASEAN member states.
(3) Stable access to natural resources
ASEAN is getting more and more important to Korea, as some of the member countries have abundant natural resources. Korean companies are developing natural resources such as crude oil, natural gas, timber, and rubber, etc. in Indonesia and Malaysia.
(4)A center for economic and diplomatic cooperation
ASEAN is expected to serve as a pivot for economic and diplomatic cooperation due to its
geopolitical advantage. ASEAN concluded FTAs with Korea, China, Japan, Australia, New Zealand, and India. Also, under discussion are EAFTA (East Asia Free Trade Area), EAEC (East Asia
Economic Caucus), and Regional Financial Architecture.
Furthermore, ASEAN emerged as a center for diplomacy and national security by cooperating with ARF (ASEAN Regional Forum), TAC (Treaty of Amity and Cooperation in South-East Asia), EAS (East Asia Summit), ASEM, and APEC.
II. Status of economic cooperation between Korea/China/Japan and ASEAN
1. South Korea
Korea has contributed to narrowing economic gaps among the ASEAN member states, as it supports the poor four member countries (Vietnam, Laos, Cambodia, Myanmar), and helps eliminate poverty by expanding foreign assistance. Korea plans to provide KRW1.9 trillion of the EDCF (Economic Development Cooperation Fund) to Vietnam, India, the Philippines, and
Cambodia between 2009 and 2012. In this process, Korea’s experience and know-how on economic development will be shared with the recipient countries.
As the incoming chair of the G-20 in 2010, Korea will voice for emerging countries, make efforts to stabilize the regional financial market through the ASEAN+3 framework, and pursue the ABMI (Asian Bond Market Initiative). Also, it will take the lead in establishing the Surveillance Unit of the CMI.
Korea also will use its technology in developing ASEAN’s natural resources, maximizing the effect of cooperation. East Asia Climate Partnership, a carbon-trading market for developing countries, and joint research on green technology will also be wonderful examples of cooperation with the ASEAN member states. The government has supported Korean companies working in the ASEAN countries.
2. China
The volume of China-ASEAN trade has increased more than 25 percent each year. ASEAN is the fourth largest trade partner for China, following the EU, the U.S., and Japan. China offered assistance worth US$14.8 billion to ASEAN and continued to increase investments in the region.
China agreed to expand the currency swap deal with ASEAN and is considering using yuan in overseas trade settlement in Shanghai and four cities in the Pearl River Delta - Guangzhou, Shenzhen, Dongguan and Zhuhai.
3. Japan
Under the Asia-Wide Initiative, Japan plans to develop an Asia development framework and provide ODA (Official Development Assistance), public and private assistance to ASEAN. The government announced the support scheme worth up to US$100 billion at the ASEAN+3 Finance Ministers’ Meeting. This scheme came in the form of currency swap deals and the funding
commitment, aiming to stabilize the ASEAN financial market.
