Building the Northeast Asian Community

I. Introduction: Regionalism, Globalization, and the Need for a Northeast Asian Economic Organization

Asia is one of the most socio-politically divided regions in the world. Without regional cooperation,¹ it faces difficulty in the world market, sometimes receiving unfair treatment. Asia contains more than half of the world's population,² but Asian countries have a relatively small share of international organizations.³ Given these facts, it is meaningful to explore the need and legal basis for a Northeast Asian Community (NEAC), which would be an economically integrated regional trade association composed of Korea, China, and Japan.⁴

Within the last decade, the possibility of an East Asian regional trade agreement (RTA) or a much broader Asia-Pacific integration has been debated extensively.⁵ Though not currently regionalized, Asia could be divided into three groups.⁶ In the Southeast Asian region, there is the Association of Southeast Asian Nations (ASEAN).⁷ ASEAN established the Asian Free Trade Area (AFTA) in 1993 and included Cambodia as its tenth member in 1999. In 1983, Australia and New Zealand organized the Australian/New Zealand Closer Economic Trade Relations Agreement (ANZCERTA) which has strengthened their cooperation with Asian countries, following the United Kingdom's entry into the European Union (EU).⁸ South Asia, the second regional group, is made up of India, Pakistan, Sri Lanka, and Bangladesh, whose economic contribution in Asia is relatively small. The group remains divided by religious conflicts and a contentious history. A third regional group, Northeast Asia, has the potential to develop into a similar economic community because of the increasing necessity of integration among neighboring countries.

A recently proposed formation of an East Asian Economic Caucus (EAEC)⁹ aimed to create an extended form of ASEAN, with China, Japan, and South Korea as its core states.¹⁰ A regional community requires a certain degree of cultural homogeneity, what is sometimes called "an inherent regional civil society."¹¹ Given the strong societal differences between Northeast and Southeast Asia, it would be more workable to establish the NEAC, while Southeast Asia strengthens AFTA, than to extend ASEAN to encompass Northeast Asia.¹²

With the end of the Cold War, Asia-Pacific (including the Americas and Oceania) intergovernmental cooperation systems emerged from the Asia Pacific Economic Cooperation (APEC) process, in 1989. APEC is a loose organization which has regional, multilateral, and interregional characteristics.¹³ "The subsequent Asia-Europe meeting (ASEM) established an inter-regional dialogue system between East Asia with the European Union."¹⁴

A regional community like the EU¹⁵ established in Northeast Asia would provide several key benefits. Economically, the Northeast Asian countries would receive increased efficiency through economies of scale; increased productivity stimuli; strengthened bargaining power in the international market; and the "trade creation effect." Even though economic theory does not support such integration in every instance, a regional community, on the whole, improves its productive abilities with the creation of gains from trade.

The Heckscher-Ohlin (H-O) theory (also called the factor-price equalization theorem), which is based on the theory of comparative advantage, postulates that welfare improvement within a community can be achieved through the exchange of goods created by each state's plentiful factors of production and through price equalization.¹⁶ Free trade in a regional community brings optimum allocative efficiency by use of specialized factors of production. Given an extended opportunity, the use of these specialized factors would result in economies of scale and productivity stimulation. This theory, however, is premised on the idea that each country participant has different, plentiful factors of production and that these factors are homogenous.

A RTA brings with it two kinds of trade effects. One is the trade creation effect: this refers to the expansion of trade with efficient suppliers inside the community. The other is the "trade diversion effect," which refers to a shift in trade from the efficient suppliers outside the community to inefficient suppliers located...