Economic Integration in Northeast Asia

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Economic Integration in Northeast Asia Jeffrey J. Schott, Senior Fellow, and Ben Goodrich, Research Assistant Presented at the 2001 KIEP/KEI/CKS Conference on The Challenges of Reconciliation and Reform in Korea Los Angeles, California 24-26 October 2001 A similar paper, entitled "Reflections on Economic Integration in Northeast Asia", was presented at the KIEP/NEAEF Conference on Strengthening Economic Cooperation in Northeast Asia in Honolulu, Hawaii on 16-17 August 2001 Economic Integration in Nort heast Asia Until the 1990s, the three main countries of Northeast Asia—China, Japan, and South Korea—were distinguished from most other major trading nations by their nonparticipation in regional economic arrangements. 1 For much of the postwar period, China remained a large, underdeveloped, and relatively autarkic economy (Lardy 1994). In contrast, Japan and Korea became major exporting nations but relied primarily on the rules of the General Agreement on Tariffs and Trade (GATT), and later the World Trade Organization (WTO), to govern their trade relations with other countries. The multilateral system established a framework of rights and obligations that enabled both Japan and Korea to pursue export- led growth strategies in the 1970s and 1980s and rapid ly expand trade with the United States (and to a lesser extent Europe). To be sure, both countries also increased trade and investment with their neighbors in East and Southeast Asia but at a slower pace than trade with the rest of the world.

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Throughout this paper, Northeast Asia refers to China, Japan, and South Korea (except where North Korea is specifically mentioned) and references to Korea mean the Republic of Korea unless otherwise noted.

2 Several political and economic obstacles constrained the deepening of economic cooperation among the countries of Northeast Asia. Most prominent were the political and ideological barriers that separated China from its neighbors, continuing military...