Intra-Regional Trade in East Asia : Need to Overcome Excessive Concentration on Intermedia

Trade in East Asia has been growing and expanding consistently thanks to the spread of the market liberalization policy in the region. The acceleration of efforts to adopt various free trade agreements (FTAs) in the region has also increased the volume and the importance of intra-regional trade here. Despite the outward growth of trade in the region of East Asia, intra-regional trade in this region has begun to display a number of shortcomings. If the growth of the sheer volume and the share of intra-regional trade indicate the quantitative growth of trade in this region, the level of introversion may indicate the qualitative side of intra-regional trade.

There are mainly two measures of trade introversion, namely, the Intra-regional Trade Intensity Index (IRTII), and the Regional Trade Introversion Index (RTII). The analysis of trade in East Asia according to both measures revealed that intra-regional trade among the 16 countries in the region is significantly less introverted than the counterparts in either the EU or the NAFTA. Whereas the introversion of trade in the EU and the NAFTA has increased since the latest global economic crisis, the East Asian case has moved in the opposite direction.

There are mainly two reasons for the relative extrovertedness of trade in East Asia. First, China, which occupies a central position in intra-regional trade in the region, is maintains an extroverted trade structure. Second, intra-regional trade in East Asia is still mainly focused on the trade of intermediate goods, which made up 56.9% of all types of goods traded in East Asia in 2011, while final goods made up only 28.2%. This indicates that, while East Asia, as a whole, has become the pivotal producer of intermediate goods, much of the demand for the final goods still lies outside the region.

This analysis proves the need for single rules of trade liberalization with a more comprehensive scope and at a higher level. If countries in East Asia have ultiplied their respective trade volumes by signing FTAs with one another so far, they now need to enhance the quality of their trade by adopting the common norms and principles of trade liberalization applying to broader areas. The effect of such norms will be even greater if they applied not only to intermediate goods, but also to final and consumption goods.

The current analysis of the trade structure in East Asia also bears significant implications for Korean businesses. The volume of trade continues to increase not only between Korea and China but also between Korea and the members of the Association of Southeast Asian Nations(ASEAN). Intermediate goods, however, make up 68.2% of all trade that Korea conducts with fellow East Asian countries, which is a figure far higher than those for China and Japan (53.3% and 55.8%, respectively). Considering the pace of economic growth in East Asia and the expedited efforts toward intra-regional economic integration, Korean businesses will need to adopt mid- to long-term growth strategies that support the active development of products that the intra-regional market will demand.