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Growing Together - Economic Integration for an Exclusive and Sustainable Asia-pacific Century







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Photo by Warren Field
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FOREWORD
For the global economy, these are difficult times. The world is emerging from a crisis 
whose aftershocks continue to resonate – trapping some of the richest economies in 
recession and shaking the foundations of one of the world’s major currencies.
Here at ESCAP, there are historical echoes. What is now the Economic and Social  
Commission for Asia and the Pacific was founded more than 60 years ago – also in 
the aftermath of a global crisis. The countries of Asia and the Pacific established their 
new Commission partly to assist them in rebuilding their economies as they came 
out of the yoke of colonialism and the Second World War. The newly established 
ECAFE, as ESCAP was called then, held a ministerial conference on regional economic 
cooperation in 1963 that resolved to set up the Asian Development Bank with the 
aim of assisting the countries in the region in rebuilding their economies. Fifty years 
later, the Asia-Pacific region is again at a crossroads, on this occasion seeking ways 
and means to sustain its dynamism in a dramatically changed global context in the 
aftermath of a global financial and economic crisis.
An important change is the fact that, burdened by huge debts and global imbalances, 
the advanced economies of the West are no longer able to play the role of engines of 
growth for the Asia-Pacific region that they played in the past. Hence, the Asia-Pacific 
region has to look for new engines of growth. The secretariat of ESCAP has argued 
over the past few years that regional developmental challenges, such as poverty and 
wide disparities in social and physical infrastructure, can be turned into opportunities 
for sustaining growth in the future. Our “bottom billion”, if lifted out of poverty and 
allowed to join the mainstream of the region’s consumers, could help sustain growth 
in Asia and the Pacific – and the world at large – for decades to come. Capabilities and 
resources vary across countries, giving rise to complementarities and  opportunities 
Photo by Warren Field
for mutually beneficial exchanges which could be unlocked by enhancing regional 
economic integration, the topic chosen by the Commission for its sixty-eighth session, 
in 2012.
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Growing Together articulates a number of proposals that can help the region 
exploit its huge untapped potential for regional economic integration. 
I hope that they will provide useful inputs for deliberations by ESCAP 
members  at the sixty-eighth session of the Commission and beyond. With an 
integrated regional market complemented by seamless connectivity, mechanisms 
for redeploying the region’s savings to close its development gaps, and coordinated 
regional  responses to address shared vulnerabilities, including those arising from 
growing resource scarcities and shrinking carbon space, the Asia-Pacific region 
will be in a stronger position not only to sustain its dynamism but also to embrace 
a more inclusive and sustainable pattern of development. A dynamic Asia-Pacific 
region capable of wiping out the scourge of poverty, hunger and disease will 
also provide an effective locomotive for the world economy and an anchor of 
stability. The resulting shared prosperity and increased interdependences will foster 
peace, turning the twenty-first century into an inclusive and sustainable Asia-Pacific 
century.
I believe that this is an important agenda for the region to move ahead with. I know 
that many visionary leaders and statesmen from the region have already articulated 
similar views over the past few years. The time may have come to move towards action. 
As the secretariat of an intergovernmental body representing the Asia-Pacific region,  
ESCAP stands ready to assist the region in building a prosperous, inclusive, harmonious, 
resilient and sustainable Asia-Pacific century.
I hope that Growing Together will prove valuable not only to the members of the  
Commission but also to readers around the world interested in this dynamic region 
and its likely future direction.
Noeleen Heyzer
Under-Secretary-General of the United Nations and
Executive Secretary, United Nations Economic and 
Social Commission for Asia and the Pacific
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ACKNOWLEDGEMENTS
Under the overall direction and guidance of Noeleen Heyzer, Under-Secretary 
General of the United Nations and Executive Secretary of ESCAP, the preparation 
of this study was led by an inter-divisional taskforce of the ESCAP Secretariat, 
chaired by Nagesh Kumar, Chief Economist and Director of the Subregional Office 
for South and South-West Asia. Other members of the taskforce were Aynul 
Hasan, Officer-in-Charge, a.i. of the Macroeconomic Policy and Development 
Division; Hongpeng Liu, Chief of the Energy Security and Water Resources Section, 
Environment and Development Division; Yuichi Ono, Chief of Disaster Risk Reduction 
Section, Information and Communications Technology and Disaster Risk Reduction 
Division; Mia Mikic, Economic Affairs Officer, Trade and Investment Division; Iosefa 
Maiava, Head of the ESCAP Pacific Office; Nikolay Pomoshchnikov, Director of the 
Subregional Office for North and Central Asia; A.S.M. Quium, Economic Affairs 
Officer, Transport Division; Kilaparti Ramakrishna, Director of the Subregional Office 
for East and North-East Asia; K. V. Ramani, Senior Regional Advisor, Office of the 
Executive Secretary; Vanessa Steinmayer, Social Affairs Officer, Social Development 
Division; and Jan Smit, Chief of the Statistical Development and Analysis Section, 
Statistics Division. 
The core team of drafters was coordinated by Nagesh Kumar and Alberto Isgut and 
included the following ESCAP staff members: Masato Abe, Witada Anukoonwattaka, 
Sudip Ranjan Basu, Tiziana Bonapace, Abhijeet Deshpande, Yann Duval, Preminda 
Fernando, Clovis Freire, Maren Jimenez, Mia Mikic, Margit Molnar, Aneta Nikolova, 
Yuichi Ono, A.S.M. Quium, Krishnamurthy Ramanathan, Heini Salonen, Vanessa 
Steinmayer, Donovan Storey, Yusuke Tateno, Sergey Tulinov, Katinka Weinberger, 
Upali Wickramasinghe, and Jenny Yamamoto. The following ESCAP staff members 
provided inputs and made comments and suggestions: Shuvojit Banerjee, Pierre 
Chartier, Sytske Claassen, Jeong Dae Lee, Kohji Iwakami, Nobuko Kajiura, Srisakul 
Kanjanabus, Jorge Martinez-Navarrete, Lys Mehou-Loko, Kenan Mogultay, Oliver 
Paddison, Pisit Puapan, Hitomi Rankine, Raj Jain Sandeep, Patcharin Sequeira, Harumi 
Shibata, Vatcharin Sirimaneetham, and Charlotte Young. The team in charge of the 
production process of the volume included the following ESCAP staff members: 
Sopitsuda Chantawong, Metinee Hunkosol, Achara Jantarasaengaram, Chawarin 
Klongdee, Pannipa Ongwisedpaiboon, Anong Pattanathanes, Kiatkanid Pongpanich, 
Woranut Sompitayanurak, Amornrut Supornsinchai and Sutinee Yeamkitpibul. 
v

The following experts prepared technical background papers for the study: 
Suthiphand Chirathivat, Associate Professor, Faculty of Economics, Chulalongkorn 
University, Thailand; John Gilbert, Professor, Department of Economics & Finance, 
Utah State University, USA; Saman Kelegama, Executive Director, Institute of 
Policy Studies of Sri Lanka, Sri Lanka; Galina Kostyunina, Professor of International 
Economic Relations, Moscow State Institute of International Relations, Russian 
Federation; Satoru Kumagai, Director, Economic Integration Studies Group, Institute 
of Developing Economies, Japan; Lim Mah-Hui, Senior Fellow, Socio-economic & 
Environmental Research Institute, Malaysia; Biman Prasad, Professor of Economics 
and Dean of the Faculty of Business and Economics, University of the South Pacific, 
Fiji; Shujiro Urata, Professor, Waseda University, Japan.
The report benefited from comments and suggestions from participants to the 
Expert Group Meeting held in Bangkok on 9 March 2012: Ramgopal Agarwala, 
Distinguished Fellow, Research and Information System for Developing Countries, 
India; Rashid Amjad, Vice Chancellor, Pakistan Institute of Development Economics, 
Pakistan; Suthiphand Chirathivat, Associate Professor, Chayodom Sabhasri, Associate 
Professor and Piti Srisaengnam, Faculty of Economics, Chulalongkorn University, 
Thailand; Saman Kelegama, Executive Director, Institute of Policy Studies of Sri 
Lanka, Sri Lanka; K. Kesavapany, Director, Institute of Southeast Asian Studies, 
Singapore; Vladimir Krasnogorskiy, Head of International and Regional Programmes, 
Department of the International Institute of Energy Policy and Diplomacy, MGIMO 
University, Russian Federation; Latifah Merican-Cheong, Advisor, Chairman’s Office, 
Securities Commission Malaysia, Malaysia; Biman Prasad, Professor of Economics and 
Dean of the Faculty of Business and Economics, University of the South Pacific, 
Fiji; Mohammed Rahmatullah, Senior Visiting Fellow of Centre for Policy Dialogue, 
Bangladesh and Former Director of Transport Division of ESCAP; Hermanto Siregar, 
Professor, Faculty of Economics and Management, Bogor Agricultural University, 
Indonesia; Craig Warren Smith, Senior Fellow, Centre for Ethics of Science and 
Technology, Chulalongkorn University, Thailand;  Jin Kyo Suh, Senior Research 
Fellow, Korea Institute for International Economic Policy, Republic of Korea; Naoyuki 
Yoshino, Professor, Department of Economics, Keio University, Japan; Wang Yuzhu, 
Associate Professor, Institute of Asia-Pacific Studies, Chinese Academy of Social 
Sciences, China; Kazunobu Hayakawa, Researcher, Bangkok Research Center, Japan 
External Trade Organization, Thailand.
Substantive editing of the manuscript was performed by Peter Stalker. Alan Cooper, 
Editorial Unit of ESCAP edited the manuscript. The graphic design was created 
by Marie-Ange Sylvain-Holmgren, layout by Salapol Ansusinha, and printing were 
provided by Advanced Printing Service. 
vi

CONTENTS
 
Page
Foreword ......................................................................................................................................................................... i i
Acknowledgements .................................................................................................................................................. v
Contents .......................................................................................................................................................................... vi
Abbreviations ............................................................................................................................................................... xi i
Explanatory notes .................................................................................................................................................... xvi
Executive Summary ................................................................................................................................................. xix
Chapter One. The case for regional economic integration in Asia and the Pacific  
2
 
Re-emerging Asia and the Pacific  ........................................................................................................ 2
 
A chal enging new context for the region  ................................................................................... 
4
 
Regional integration for an inclusive and sustainable Asia-Pacific century  .................. 7
 
Conditions for fruitful integration  ......................................................................................................... 9
 
Lessons from global experience  ............................................................................................................ 10
 
Emerging regional economic integration in Asia and the Pacific  ..................................... 
12
 
Strengths, weaknesses, opportunities and threats of broader regionalism  .................. 15
 
Key elements of regional economic integration  .......................................................................... 16
Chapter Two. Towards a broader integrated market  ................................................... 20
 
Trading opportunities  ................................................................................................................................... 20
 
Barriers to trade  ........................................................................................................................................... 
26
 
Expanding trade in commercial services  ........................................................................................ 
29
 
Movement of people  ................................................................................................................................... 33
 
Foreign direct investment  ......................................................................................................................... 37
 
A fragmented region  ................................................................................................................................... 40
 
In search for a broader framework for regional integration  ................................................ 49
 
Reaching out across the region  ........................................................................................................... 
57
Chapter Three. Building seamless connectivity  ............................................................. 62
 Transport 
 .............................................................................................................................................................. 63
 
Connectivity for energy security ............ ............................................................................................... 72
  
Information and communications technology and digital connectivity  ........................ 
80
 
Moving towards an integrated regional infrastructure  ........................................................... 
85
vii

CONTENTS (continued)
Page
  
Chapter Four. Enhancing regional financial cooperation  ............................................ 92
 
Financial cooperation  ................................................................................................................................... 93
 
Financing infrastructure development  ................................................................................................ 95
 
Initiatives for regional financial cooperation in Asia and the Pacific  ............................... 99
 
Towards a development-friendly regional financial architecture for Asia
 
  and the Pacific ............................................................................................................................................. 104
Chapter Five. Economic Cooperation for addressing shared vulnerabilities 
and risks  ....................................................................................................... 112
 
Food security  .................................................................................................................................................... 112
 
Dealing with disasters  .................................................................................................................................. 117
 
Pressures on natural resources and sustainability  ....................................................................... 123
 
Addressing sustainability risks through technological cooperation  ................................... 128
 
Addressing social risks  ................................................................................................................................. 129
Chapter Six. Towards an inclusive and sustainable Asia-Pacific century  ................ 136
 
Institutional architecture  ............................................................................................................................. 137
 Secretariat 
 ........................................................................................................................................................... 138
 
The way forward  ............................................................................................................................................ 138
Annex: Technical notes  ........................................................................................................ 140
References ............................................................................................................................ 
146
viii

BOXES
FIGURES
Page
I.1.  Asia-Pacific leaders’ statements on broader regionalism  ........................................................ 14
I .1.  Key RTAs in each of the five subregions of Asia and the Pacific  .................................... 40
I .2.  Trans-Pacific Partnership  ............................................................................................................................. 44
I .3.  ASEAN Single Window project implementation  .......................................................................... 48
I .4.  Achieving paperless trade in Asia and the Pacific  ..................................................................... 49
I .5.  The Greater Mekong Subregion (GMS) Agreement on Facilitation of
 
  Cross-Border Transport of Goods and People  .......................................................................... 50
I .6.  Central Asia Regional Economic Cooperation (CAREC) Transport and
 
  Trade Facilitation Strategy  ..................................................................................................................... 51
I I.1.  Regional Strategic Framework for Facilitation of International Road Transport  ......... 71
I I.2.  SAARC Energy Ring  ....................................................................................................................................... 75
I I.3.  Asian and Pacific Energy Forum  ........................................................................................................... 80
I I.4.  Asian Energy Highway  ................................................................................................................................. 81
I I.5.  Intraregional connectivity in Europe  ................................................................................................... 86
I I.6.  Sharing railway and telecommunications infrastructure in India  ........................................ 87
V.1.   Climate change and disasters  ................................................................................................................. 119
V.2.   Regional cooperation on early warning systems for disaster risk reduction  .............. 122
V.3.   Innovation and technology transfer  .................................................................................................... 126
ix

FIGURES
Page
I.1.  Real rates of growth of GDP, Asia-Pacific economies and advanced economies  .... 3
I.2.  Country groups on and off track for the MDGs ......................................................................... 5
I.3.  The Asia-Pacific share of the developing world’s deprived people  ................................. 6
I.4.  Infrastructure index, selected economies  ......................................................................................... 8
I.5.  Performance indicators of Cambodia, Lao People’s Democratic Republic 
 
  and Viet Nam, in comparison with ASEAN, 1992-2010  ........................................................ 12
I .1.  Destination of Asia-Pacific exports, 2002-2016  .............................................................................. 21
I .2.  The ten most promising export markets for Asia-Pacific countries  ................................. 23
I .3.  Export opportunities, by country  .......................................................................................................... 25
I .4.  Policy-related factors in trade costs  .................................................................................................... 27
I .5.  Agricultural and manufacturing non-tariff comprehensive trade costs 
 
  between selected economies and Japan  .................................................................................... 29
I .6.  Exports of commercial services and merchandise, Asia-Pacific, 2000-2010  .................. 30
I .7.  Changes in the share of commercial services exports, Asia and the Pacific 
 
  and the world, 2000-2010  ..................................................................................................................... 31
I .8.  Number of international students in selected Asia-pacific economies, 2009  ............. 33
I .9.  Top recipients of FDI inflows in Asia and the Pacific in 2010 and 
 
  FDI outflows from these countries  .................................................................................................. 38
I .10.  Network of trade agreement between countries in Asia and the Pacific  ................... 46
I .11.  Scenarios A and B for trade liberalization in AFTA, SAFTA, ECOTA 
 
  and PACER-Plus  ........................................................................................................................................... 52
I .12.  Long-run welfare gains for four subregional agreements, including trade
 
  facilitation  ........................................................................................................................................................ 53
I .13.  CEPEA as a potential nucleus of a broader integrated market  .......................................... 54
I .14.  Potential benefits of expanding ASEAN Free Trade Area to ASEAN+6 (CEPEA)  ....... 55
I .15.  Starting afresh through the broadest and most comprehensive 
 
  possible agreement  ................................................................................................................................... 55
I .16.  Welfare gains from region-wide liberalization  ............................................................................... 56
I I.1.   UNCTAD liner shipping connectivity index, 2006 and 2011  ................................................. 64
I I.2.  Asian Highway network  .............................................................................................................................. 67
I I.3.  Trans-Asian Railway network  .................................................................................................................... 69
I I.4.  Energy trade in the Asia-Pacific region  ............................................................................................. 74
I I.5.  The proposed Trans-ASEAN gas pipeline grid  .............................................................................. 77
I I.6.  Proposed ASEAN Power grid  .................................................................................................................. 78
I I.7.   Relationships between connectivity, usage prices and income, 
 
  selected economies, 2009  ..................................................................................................................... 83
I I.8.  Submarine telecommunications cables landing in Asia and the Pacific  ........................ 84
IV.1.  Credit spreads and bond premia for five-year term loans or issues, 
 
  for different ratings of borrowers or issuers, January 2012  .............................................. 98
x

FIGURES (continued)
TABLES
Page
IV.2.  Public-private partnerships as a percentage of fixed capital formation, 
 
  selected countries  ...................................................................................................................................... 100
IV.3.  A possible scheme of revenue bonds  ............................................................................................... 101
IV.4.  Returns on selected infrastructure assets and major treasury bonds 
 
  over 2002-2007  ............................................................................................................................................ 106
V.1.   Fiji, annual fluctuations in GDP relative to the incidence of disasters, 
 
  1980-2008  ....................................................................................................................................................... 120
V.2.   Primary energy use in Asia and the Pacific and the rest of the world, 
 
  1971-2008  ........................................................................................................................................................ 123
V.3.   Availability of water resources per capita, by region and subregion, 2008  ................ 124
V.4.   Domestic material consumption in Asia and the Pacific and 
 
  the rest of the world, 1970-2005  ...................................................................................................... 125
V.5.   Shares of main material categories in Asia and the Pacific, 1970 and 2005  ............. 125
V.6.   Social exclusion in 1990 and foreign direct investment over 2003-2010  ...................... 131
xi

TABLES
Page
I.1.  Transitions from middle-income to advanced-country levels  ............................................... 11
I .1.  Distribution of merchandise exports, by region, 2000 and 2010  ...................................... 21
I .2.  Distribution of Asia-Pacific merchandise exports, by subregion, 
 
  2000 and 2010  ............................................................................................................................................ 22
I .3.  Export opportunities indicator, for the average country in Asia-Pacific 
 
  subregions and selected regions of the world  ........................................................................ 24
I .4.  Non-tariff intraregional and extraregional trade costs in Asia and the Pacific,
 
  2007-2009  ........................................................................................................................................................ 28
I .5.  Intraregional trade in commercial services, selected exporters and 
 
  importers, 2008  ........................................................................................................................................... 31
I .6.  Tourism arrivals, selected Asia-Pacific countries, 2010  ............................................................... 32
I .7.  Bilateral remittances received by the Asia-Pacific subregions, 2010  ................................. 35
I .8.  Average FDI flows to and from Asia-Pacific countries and their global shares,
 
  1996-2000 and 2006-2010  ..................................................................................................................... 37
I .9.  CEPEA in relation to the EU and NAFTA in 2011  ....................................................................... 54
I .10.  Summary of welfare gains in the simulations  .............................................................................. 56
I I.1.   Liner shipping connectivity index and container traffic for selected countries  ........ 65
I I.2.  Missing links in the Trans-Asian Railway network, end 2011  ............................................... 68
I I.3.  Status of accession of ESCAP regional members to the seven international 
 
  conventions related to land transport facilitation listed in Commission 
 
  resolution 48/11, as of 14 February 2012  ..................................................................................... 70
I I.4.  Simulation model of benefits from three Asian Highway routes  ...................................... 73
IV.1.  Interdependence in portfolio capital investment in Asia and the Pacific  .................... 94
IV.2.  Comparison of selected regional and national development banks  ............................... 97
IV.3.  Access to funds under the Chiang Mai Initiative Multilateralization and 
 
  short-term liabilities, 2010  ...................................................................................................................... 102
IV.4.  Investing in infrastructure through funds and listed assets  .................................................. 107
V.1.   Deaths and economic damages and losses due to recent mega-disasters in 
 
  Asia and the Pacific  .................................................................................................................................. 118
xii

ABBREVIATIONS
ABF   
Asian Bond Fund
ABMI   
Asian Bond Market Initiative
ACD   
Asian Cooperation Dialogue
ACRAA  
Association of Credit Rating Agencies in Asia
ACU   
Asian Clearing Union 
ADB   
Asian Development Bank
ADBI   
Asian Development Bank Institute
AERR    
ASEAN Emergency Rice Reserve
AFAS   
ASEAN Framework Agreement on Trade in Services
AFTA   
ASEAN Free Trade Area
AH 
 
Asian Highway
AIA 
 
ASEAN Investment Area
AICO   
ASEAN Industrial Cooperation
AIF 
 
ASEAN Infrastructure Fund
AIFS   
ASEAN Integrated Food Security Framework
AMRO   
ASEAN+3 Macroeconomic Research Office
APAARI 
Asia-Pacific Association of Agricultural Research Institutions
APCTT 
Asian and Pacific Centre for Transfer of Technology
APEA   
Asia-Pacific Economic Area
APEC   
Asia-Pacific Economic Cooperation 
APES   
Asia-Pacific Economic Summit 
APTA   
Asia-Pacific Trade Agreement
APTEC  
Asia-Pacific Trade and Economic Cooperation Agreement  
APTECH 
Asia-Pacific Technology Development Council
APTERR 
ASEAN+3 Emergency Rice Reserve
ASEAN 
Association of Southeast Asian Nations
ASEM   
Asia-Europe Meeting 
ASW   
ASEAN Single Window
ATIGA   
ASEAN Trade in Goods Agreement
BIBF   
Bangkok International Banking Facilities
BIMSTEC 
Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation
BIS 
 
Bank for International Settlements
BNDES 
Brazilian Development Bank
BRICS   
Brazil, Russian Federation, India, China, and South Africa
BTA 
 
bilateral trade agreement
CAC   
Central Asia – Center
CAF   
Development Bank of Latin America
CAREC 
Central Asia Regional Economic Cooperation
CARICOM 
Caribbean Community
CBTA   
Cross-border Transport Agreement
CDM   
Clean Development Mechanism
xiii

ABBREVIATIONS (continued)
CEPA   
Closer Economic Partnership Agreements
CEPEA  
Comprehensive Economic Partnership for East Asia
CEPT   
Common Effective Preferential Tariff
CGE    
Computable general equilibrium
CGIF   
Credit Guarantee and Investment Facility
CIS 
 
Commonwealth of Independent States
CISFTA 
CIS Free Trade Agreement
CMIM   
Chiang Mai Initiative Multilateralization
COMESA 
Common Market for Eastern and Southern Africa
CSIRO   
Commonwealth Scientific and Industrial Research Organisation
EAERR  
ASEAN East Asia Emergency Rice Reserve
EAFTA   
East Asia Free Trade Agreement 
EAS   
East Asia Summit
EBRD   
European Bank for Reconstruction and Development
ECAFE   
Economic Commission for Asia and the Far East
ECFA   
Economic Cooperation Framework Agreement
ECO   
Economic Cooperation Organization
ECOTA  
Economic Cooperation Organization Trade Agreement
EIA 
 
Energy Information Administration
EIB 
 
European Investment Bank
EIU    
Economist Intelligence Unit
EMEAP 
Executives Meeting of East Asia Pacific Central Banks
ENEA   
East and North-East Asia
EPS 
 
Employment Permit System
ESCAP  
United Nations, Economic and Social Commission for Asia and the Pacific
ESMAP  
Energy Sector Management Assistance Program 
EST 
 
environmentally sustainable technologies
EU 
 
European Union
EurAsEC 
Eurasian Economic Community
FAO    
Food and Agriculture Organization of the United Nations
FDI 
 
foreign direct investment
FTA 
 
free trade agreement
G-20   
Group of Twenty
GATS   
General Agreement on Trade in Services
GATT   
General Agreement on Tariffs and Trade 
GCC   
Gulf Cooperation Council 
GDP   
gross domestic product
GHz  
gigahertz
GMS   
Greater Mekong Subregion
GMS-FRETA  Greater Mekong Subregion Freight Transport Association
HIV 
 
human immunodeficiency virus
IATA   
International Air Transport Association
ICAO    
International Civil Aviation Organization
xiv

ABBREVIATIONS (continued)
ICT 
 
information and communications technology
IDE    
Institute of Developing Economies
IDI 
 
ICT Development Index
IEA 
 
International Energy Agency
IFA 
 
Intergovernmental Framework Agreement
IFC 
 
International Financial Corporation
IFSL   
International Financial Services London 
IMF 
 
International Monetary Fund
INSTC   
International North-South Transport Corridor
IPB  
 
ICT Price Basket 
IPCC   
Interngovernmental Panel on Climate Change
IRRI 
 
International Rice Research Institute
IT 
 
information technology
ITU 
 
International Telecommunication Union
KIEP   
Korea International Economic Policy Institute
kW  
kilowatt
LCS 
 
Land Border Customs Station
LCT 
 
Low Carbon Technology
LDC   
least developed country
LLDC   
landlocked developing country
LNG   
liquefied natural gas
Mbit/s  
mega bits per second
MDG   
Millennium Development Goals
MERCOSUR  Common Market of the South
MFN   
most favoured nation
MNE   
multinational enterprise
Mtoe    
million tons of oil equivalent 
NAFTA 
North American Free Trade Agreement
NCPCSL 
National Cleaner Production Centre of Sri Lanka
NDF   
non-deliverable forward
NESDB 
National Economic and Social Development Board of Thailand
NIE 
 
newly industrializing economy
NSW   
National Single Window
NTM   
non-tariff measure
OCD   
Office of Civil Defense
OCR   
ordinary capital resources
OECD   
Organisation for Economic Co-operation and Development
PACER   
Pacific Agreement on Closer Economic Relations
PICTA   
Pacific Island Countries Trade Agreement
PICTs    
Pacific island countries and territories
PIF 
 
Pacific Islands Forum
PPP   
purchasing power parity 
PPPs    
public-private partnerships
xv

ABBREVIATIONS (continued)
RCM   
Regional Coordination Mechanism
REITs   
real estate investment trust funds
RGDP    
regional gross domestic product
RIMES   
Regional Integrated Multi-Hazard Early Warning System for Africa and Asia
RMB   
Chinese yuan
ROO   
rules of origin
RTA 
 
regional trade agreement
SAARC 
South Asian Association for Regional Cooperation
SAARCFINANCE  Network of Governors and Finance Secretaries of the SAARC region
SADC   
Southern African Development Community 
SAFTA   
South Asian Free Trade Area
SARSO 
South Asian Regional Standards Organisation
SATIS   
South Asia Agreement on Trade in Services
SDF   
SAARC Development Fund
SDR   
special drawing right
SDT   
special and differential treatment
SEACEN 
Southeast Asian Central Banks
SEANZA 
Southeast Asia, New Zealand, Australia 
SIDS   
small island developing States
SKRL   
Singapore-Kunming Rail Link
SMEs   
small- and medium-sized enterprises
SPA-FS 
Strategic Plan of Action on Food Security
SPC   
Secretariat of the Pacific Community
SREX 
Special Report on Managing the Risks of Extreme Events and Disasters to 
Advance Climate Change Adaptation
TAGP   
Trans-ASEAN Gas Pipeline Project
TBT 
 
technical barriers to trade
TNC   
transnational corporation
TPP 
 
Trans-Pacific Partnership
TTFS   
transport and trade facilitation strategy
UNCSD 
United Nations Conference on Sustainable Development
UNCTAD 
United Nations Conference on Trade and Development
UNDP   
United Nations Development Programme 
UNEP    
United Nations Environment Programme
UNESCO 
United Nations Educational, Scientific and Cultural Organization
UNISDR 
United Nations International Strategy for Disaster Reduction
UNNexT 
United Nations Network of Experts for Paperless Trade for Asia and the Pacific
UNWTO 
United Nations World Tourism Organization
WB 
 
World Bank
WMO   
World Meteorological Organization
WTO    
World Trade Organization
xvi





EXPLANATORY NOTES
The designations employed and the presentation of the material in this publication 
do not imply the expression of any opinion whatsoever on the part of the Secretariat 
of the United Nations concerning the legal status of any country, territory, city or 
area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.
Mention of firm names and commercial products does not imply the endorsement 
of the United Nations.
The term “ESCAP region” in this publication refers to the group of countries and 
territories/areas comprising Afghanistan; American Samoa; Armenia; Australia; 
Azerbaijan; Bangladesh; Bhutan; Brunei Darussalam; Cambodia; China; Cook Islands; 
Democratic People’s Republic of Korea; Fiji; French Polynesia; Georgia; Guam; Hong 
Kong, China; India; Indonesia; Iran (Islamic Republic of); Japan; Kazakhstan; Kiribati; 
Kyrgyzstan; Lao People’s Democratic Republic; Macao, China; Malaysia; Maldives; 
Marshall Islands; Micronesia (Federated States of); Mongolia; Myanmar; Nauru; 
Nepal; New Caledonia; New Zealand; Niue; Northern Mariana Islands; Pakistan; 
Palau; Papua New Guinea; Philippines; Republic of Korea; Russian Federation; Samoa; 
Singapore; Solomon Islands; Sri Lanka; Tajikistan; Thailand; Timor-Leste; Tonga; 
Turkey; Turkmenistan; Tuvalu; Uzbekistan; Vanuatu; and Viet Nam. 
The term “developing ESCAP region” in this publication excludes Australia, Japan, 
New Zealand and North and Central Asian economies from the above-mentioned 
grouping. Non-regional members of ESCAP are France, Netherlands, United Kingdom 
of Great Britain and Northern Ireland and United States of America. 
The term “East and North-East Asia” in this publication refers collectively to China; 
Hong Kong, China; Democratic People’s Republic of Korea; Japan; Macao, China; 
Mongolia and Republic of Korea. 
The term “North and Central Asia” in this publication refers collectively to Armenia, 
Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Russian Federation, Tajikistan, 
Turkmenistan and Uzbekistan. 
The term “Central Asian countries” in this publication refers collectively to Armenia, 
Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and 
Uzbekistan. 
xvii

The term “Pacific” in this publication refers collectively to American Samoa, Australia, 
Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Marshall Islands, Micronesia 
(Federated States of), Nauru, New Caledonia, New Zealand, Niue, Northern Mariana 
Islands, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and 
Vanuatu. 
The term “South and South-West Asia” in this publication refers collectively to 
Afghanistan, Bangladesh, Bhutan, India, Islamic Republic of Iran, Maldives, Nepal, 
Pakistan, Sri Lanka and Turkey. 
The term “South-East Asia” in this publication refers collectively to Brunei 
Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, 
Myanmar, Philippines, Singapore, Thailand, Timor-Leste and Viet Nam. 
The term “Countries with Special Needs” in this publication refers collectively to least 
developed countries (LDCs), landlocked developing countries (LLDCs) and small 
island developing States (SIDSs) in the Asia-Pacific region.  It includes (i) 13 LDCs: 
Afghanistan,* Bangladesh, Bhutan,* Cambodia, Kiribati,** Lao People’s Democratic 
Republic,* Myanmar, Nepal,* Samoa,** Solomon Islands,** Timor-Leste,** Tuvalu** 
and Vanuatu** (*also LLDC, **also SIDS); (ii) 12 LLDCs: Afghanistan,* Armenia, 
Azerbaijan, Bhutan,* Kazakhstan, Kyrgyzstan, Lao People’s Democratic Republic,* 
Mongolia, Nepal,* Tajikistan, Turkmenistan and Uzbekistan (*also LDC); and (iii) 16 
SIDSs: Cook Islands, Fiji, Kiribati,* Maldives, Marshall Islands, Micronesia (Federated 
States of ), Nauru, Niue, Palau, Papua New Guinea, Samoa,* Solomon Islands,* 
Timor-Leste,* Tonga, Tuvalu* and Vanuatu* (*also LDC).
Values are in United States dollars unless specified otherwise.
The term “billion” signifies a thousand million. The term “trillion” signifies a million 
million.
Reference to “tons” indicates metric tons.
In the tables, two dots (..) indicate that data are not available or are not separately 
reported, a dash (–) indicates that the amount is nil or negligible, and a blank 
indicates that the item is not applicable.
In dates, a hyphen (-) is used to signify the full period involved, including the 
beginning and end years, and a stroke (/) indicates a crop year, fiscal year or plan 
year.
Bibliographical and other references have not been verified. The United Nations 
bears no responsibility for the availability or functioning of URLs.
xviii





Executive Summary
Growing together – Economic integration for 
an inclusive and sustainable Asia-Pacific century
The Asia-Pacific region’s rapid growth since the 1950s has been supported by a favourable 
external economic environment and opportunities arising from globalization. But in a 
dramatically altered post-global financial crisis scenario, the region’s dynamism, which 
is crucial for the elimination of poverty and hunger and the realization of the Asia-Pacific 
century, will critically depend on its ability to harness the potential of regional economic 
integration.

In the light of the many complementarities arising from its diversity, the region, a late starter in 
regionalism, has many underexploited opportunities for mutually beneficial regional integration. 
Regional economic integration can also assist in making regional development more balanced, 
with the lagging economies receiving a boost through a stronger connectivity and integration with 
economic growth poles, such as China and India. Apart from fostering peace, such cooperation 
could also help the region address shared vulnerabilities and risks and exercise its influence in 
global economic governance in a way that is commensurate with its rising economic weight.
Though the economic rise of Asia and the Pacific may seem to be a modern phenomenon, it is in 
fact a re-emergence. The Asia-Pacific region accounted for 56 per cent of global gross domestic 
product (GDP) up to 1820, but its share declined to 16 per cent by 1950. Subsequently, it started to 
regain its position in the world economy, first through Japan’s rapid growth, later through the rise 
of East and South-East Asia’s newly industrializing economies, and more recently by the rise of its 
two most populous countries, China and India. As a result of this dynamism, long-term projections 
suggest that the region’s share in the global economy could exceed 50 per cent by 2050, as it was 
until 200 years ago. 
Such an optimistic outlook, however, must be viewed with caution. In a dramatically altered global 
context, Western markets face an uncertain outlook and are unlikely to remain the region’s main 
engines of growth in the wake of the 2008-2009 financial crisis. Sustaining growth in the region 
will thus require Asia-Pacific economies to rely more on domestic and regional sources of demand.
One of the most promising reservoirs of domestic demand is the region’s “bottom billion” people 
currently living in poverty. But if they are to join the mainstream of Asia-Pacific consumers, their 
purchasing power must be boosted. This will require faster progress towards achieving the 
Millennium Development Goals through broad-based investments in education, health services, 
social protection and basic infrastructure, which will facilitate access to employment and business 
xix

opportunities for all social groups besides generating new aggregate demand to sustain growth 
and inclusive development. 
The Asia-Pacific region has a number of advantages that should help it accelerate economic 
integration. One is a shared history and culture. Economies in the region are also characterized 
by complementarities arising from their very different levels of development, endowments 
of natural resources, capital, and workforces. But the most important factor for the success of 
regional economic integration is the presence of large and growing markets. The emergence of 
vast middle classes with growing incomes and purchasing power in the most dynamic Asia-Pacific 
economies is leading to the creation of the world’s largest markets for a growing range of products 
and services, from mobile telephones to motor cars to jet airplanes. Such increasing demand is 
leading to rapid growth in intraregional trade in Asia and the Pacific, making regional economic 
integration not only increasingly viable but also highly desirable.
Emerging patterns of regional economic integration
Regionalism became a dominant trend in the world economy after the formation of the Single 
European Market in 1992 and the implementation of the North American Free Trade Agreement in 
1994.  These regional trade agreements (RTAs) were followed by many others.  Currently, some 300 
RTAs, including bilateral free trade agreements (FTAs), are in force worldwide, and a significant part 
of world trade is conducted on a preferential basis rather than on a most-favoured-nation basis.
Despite two early initiatives – the Asia-Pacific Trade Agreement (APTA), signed in 1975, and the 
Asian Clearing Union, set up in 1974 – both under the auspices of ESCAP, the Asia-Pacific region is a 
late starter in regional economic integration. However, the rise of regionalism as a dominant trend 
in the world economy in the 1990s and the Asian crisis of 1997, which highlighted the regional 
economic interdependence, led to a profound rethinking about the importance of regional 
economic cooperation. Since then, the Chiang Mai Initiative for monetary cooperation and a 
number of other initiatives towards regional economic integration have been taken.
Examples of initiatives to foster regional economic integration in Asia and the Pacific include the 
ASEAN Free Trade Agreement (AFTA), which advanced its year of implementation to 2002 from 
2008, and the establishment of the ASEAN Economic Community planned for 2015. Similarly, 
the South Asian Association for Regional Cooperation (SAARC) adopted in 2004 the Agreement 
on South Asian Free Trade (SAFTA), which is to be implemented over 10 years from 2006. Other 
initiatives include the Economic Cooperation Organization Trade Agreement (ECOTA) of 2003 and 
the Pacific Island Countries Trade Agreement (PICTA) of 2001. These subregional groupings are 
complemented by numerous bilateral FTAs.
Another indication of the growing recognition of broader regional economic integration in Asia 
and the Pacific is the fact that many leaders and statesmen of the region have articulated their 
visions of a broader Asia-Pacific community.
Key elements of a regional economic integration scheme
Regional economic integration will require a long-term vision of building an economic community 
of Asia-Pacific supported by the necessary frameworks and institutions. This would involve four 
key elements:
 
• An integrated Asia-Pacific market – This would involve coalescing numerous bilateral and 
subregional agreements into broader arrangements open to all Asia-Pacific countries. 
 
• Seamless physical connectivity – Through better transport, energy and information and 
communications technology (ICT) links and the adoption of best practices in trade.  
xx

 
• Financial cooperation – To ensure the optimal use of the region’s resources for mutual benefit.
 
• Addressing shared vulnerabilities and risks – Mutual cooperation will enable countries to 
respond more effectively to concerns about energy and food security, disasters, pressures on 
natural resources, social exclusion and rising inequality.
Towards a broader integrated market 
Asia and the Pacific is the world’s most dynamic trading region. Between 2000 and 2010, global 
trade increased by an annual average of 9 per cent, while trade within the region expanded by12 
per cent. Intraregional exports have far outpace those to Europe, North America and the rest of 
the world, and between 2010 and 2016, they are expected to rise from $3.1 trillion to as much 
as $6.8 trillion. If current trends continue, Asia and the Pacific would become the world’s largest 
market in 2012.
Assessing export opportunities
Growing markets provide opportunities for both current and new exporters across the world. In 
order to assess the prospects and desirability of further trade liberalization within the Asia-Pacific 
region, a new “export opportunities indicator” developed by ESCAP identifies the most promising 
export markets in the world for each country. The results show that China is among the top 10 
export markets in the world for all the countries in Asia and the Pacific. Other top 10 export markets 
for countries in the region include India (for 44 countries), the Republic of Korea (for 39 countries), 
the Russian Federation (for 32 countries) and Turkey (for 28 countries). It should be noted that 
the opportunities within Asia and the Pacific are greater than those in Europe and North America 
combined. This indicator also shows that, with the exception of East and North-East Asia, Asia-
Pacific countries have greater export potential in other subregions than in their own subregion. 
This observation contrasts with the approach to regional economic integration adopted so far, 
which remains essentially subregional and fails to recognize the often greater potential of trade 
expansion across the subregions. Furthermore, intraregional trade has not been able to exploit 
the benefits of geographical proximity as the costs of intraregional trade are often much higher 
than those of exporting to the traditional markets in the West.
Trade in services
Exports of commercial services are becoming increasingly important for Asia and the Pacific. 
Between 2000 and 2010, the region increased its contribution to world services exports from 22 
to 29 per cent. In addition, available data suggest that the region is becoming a major market for 
itself. This is to be expected, partly, as the result of the increasing purchasing power of the region’s 
emerging middle class, which can increasingly afford, for instance, the expense of travelling to 
other countries for tourism or study. In fact, recent data show that about two thirds of the arrivals 
to the top 10 tourism markets in the region originate from other countries within the region and 
that the large majority of international students studying in the region’s universities also come 
from the region.
Movement of people
Another aspect of growing trade in services is migration. Migration flows between countries in the 
region could be very effective in tackling structural demand-supply imbalances between countries 
of the region, contributing to economic growth and a reduction in region-wide disparities in 
the distribution of labour income. International migration also provides a source of income for 
members of the migrant’s household left behind, as well as a source of foreign exchange for the 
sending countries. In fact, the share of remittances originating in the region itself is significant, 
averaging about 34 per cent of the total remittances received by countries in the region in2010.
xxi

Many of the labour flows within the region are irregular, reflecting the absence of adequate legal 
frameworks to enable migration through formal channels. The absence of such formal channels 
leads to increases in the costs of migration, for instance, through more onerous recruitment 
processes. In order to regularize migration flows and maximize the benefits of labour migration, 
a number of countries have concluded bilateral agreements covering recruitment, conditions of 
employment and measures to protect the migrants.
Foreign direct investment
Foreign direct investment (FDI) flows to the Asia-Pacific region have grown tremendously, with 
the region now accounting for a quarter of global inflows, but FDI outflows from the region have 
expanded even more impressively with the emergence of economies such as China, India, Malaysia 
and Singapore joining conventional sources of FDI, such as Australia, Japan and the Republic of 
Korea. 
A fragmented region
The extent of non-tariff and behind-the-border barriers to trade suggests that there is still 
considerable scope for further trade liberalization in the region, but in the light of the limited 
progress in multilateral trade negotiations since the conclusion of the Uruguay Round in 1995, 
most countries in the region have turned to bilateral or subregional free trade agreements. Asia-
Pacific economies are parties to more than 140 agreements and are contemplating many more. 
This activism signals a preference for deeper integration among countries in the region. However, 
the overall effect is a tangle of overlapping agreements which has been likened to a noodle bowl. 
Its complexity adds to the cost of trade and does not provide a seamless or integrated regional 
market.
Bilateral and subregional agreements help boost trade, but because of their different scope, 
coverage and rules, they do not create a seamless, region-wide market and do not allow synergies 
to be exploited. What is needed is not to deepen integration within subregions but to foster trade 
links across subregions.
Towards broader regionalism
This study suggests three routes for achieving a broader integrated market of Asia-Pacific region.
An Asia-Pacific Economic Area (APEA): The first option is to create APEA as a framework to join 
existing subregional groupings to exchange trade preferences between members, in the manner 
of the European Economic Space Agreement that combines the Single Market of the European 
Union with members of the European Free Trade Association. The major subregional groupings 
that could be covered in APEA are: (i) ECOTA, (ii) AFTA, (iii) SAFTA, and (iv) the proposed Pacific 
Agreement on Closer Economic Relations-Plus, which encompasses PICTA plus Australia and New 
Zealand. Overall, these four trade agreements include 43 of the 51 Asia-Pacific economies.
A modelling exercise conducted by ESCAP suggests that member countries would gain substan-
tially if the four groupings were joined in APEA. However, this approach may be complicated by 
the fact that the four subregional groupings are at different stages of their evolution. Furthermore, 
a major limitation of this approach is that some of the region’s largest markets, such as China, 
Japan and the Republic of Korea, would remain excluded. In any event, there is a tremendous 
potential of mutual learning across the subregional groupings of the region and sharing their 
best practices. Hence, a consultative committee of subregional groupings could be constituted 
to facilitate that mutual learning.
xxii

Building on the ASEAN+ approach: The ASEAN dialogue process has contributed towards a 
discussion of broader regional arrangements. Two key proposals are the ASEAN framework include 
an East Asia Free Trade Area (EAFTA) among ASEAN+3 countries, and the Comprehensive Economic 
Partnership for East Asia (CEPEA) originating in the East Asia Summit which additionally includes 
Australia, India and New Zealand (ASEAN+6). CEPEA, the more inclusive of the two approaches, 
could be treated as the nucleus of an incipient Asia-Pacific RTA to which other countries could 
accede to.
The advantage of this approach is that a feasibility study and some subsequent exploration in 
ASEAN+ working groups have been completed. All six dialogue partners have concluded ASEAN+1 
free trade agreements  that can be easily multilateralized with common rules of origin. Combining 
the region’s growth poles, China and India, with the advanced economies of Japan and Australia 
and the Republic of Korea and those of ASEAN could produce a regional grouping comparable in 
stature with the European Union and North America Free Trade Agreement but outclassing them 
in terms of dynamism by a wide margin. Simulation results found substantial welfare gains for 
CEPEA. 
A new Asia-Pacific Trade Agreement (APTA II): As a new agreement unencumbered by prior 
commitments, it would be easier for APTA II to include all the desirable features, including 
a comprehensive scope based on negative lists, trade facilitation, investment, economic 
cooperation. Most importantly, it would include special and differential treatment and support 
for poorer countries, so that they could take advantage of the opportunities to become available 
to them – making it an RTA with a human face and a model of regional economic integration for 
other regions to emulate.
Simulation studies indicate that such an agreement would have the potential to generate the 
largest welfare gains for the region – up to $140 billion or over 1 per cent of the region’s GDP, with 
broad and comprehensive coverage.
Building seamless connectivity
Economic integration depends critically on the development of seamless connectivity between 
countries. This would require investments in transport, energy and ICT infrastructure.
Transport
Asia’s most important maritime liner routes, by volume, still run to Europe and North America. 
Although almost all the region’s coastal countries are now linked by direct shipping services or 
by transhipment and transit operations through hub ports, shipping connectivity is still poor 
between many neighbouring countries. Moreover, the Pacific island developing economies have 
the added disadvantage of being located a long distance from the rapidly growing economies in 
Asia.
Over the past decade, the region has significantly improved air transport. More low-cost carriers 
have entered the market, flight frequencies have increased, and countries have invested in new 
and existing airports. Most Asia-Pacific countries are now linked, either directly or through hubs, 
and have been making air service agreements and liberalizing their air transport markets. Land 
based transport infrastructure is needed, however, to link airports to production and population 
centres.
Land transport is important for regional economic integration and for balanced regional 
development. ESCAP simulation exercises show that improving land transport connectivity has 
potential to increase economic growth, especially in relatively poorer areas and thus reducing 
xxiii

development gaps. Land routes are particularly critical for the development of the land locked 
countries. In recent decades governments across the region have made considerable efforts 
to extend national road and railway systems.  Even so, given the likely expansion of intra-Asian 
overland trade, regional road networks are still rather inadequate. The Asian Highway network 
now extends through 32 member states and comprises 142,000 km of highways. Although there 
are no “missing links” in terms of absence of roads, poor road quality can act as a deterrent for 
international transport. For railways, the region as a whole has yet to realize its potential because 
of many missing links, which constitute about 9 per cent of the Trans-Asian Railway network.
Countries can make greater use of the Asian Highway and Trans-Asian Railway routes by 
improving transport facilitation measures and by investing in intermodal facilities such as dry 
ports. Furthermore network externalities can be expanded by connecting initiatives across the 
subregions. 
Transport is still hampered by many non-physical barriers that lead to excessive delays, high costs 
and uncertainties. ESCAP has been urging member countries to accede to seven international 
conventions related to land transport facilitation and has prepared a Regional Strategic Framework 
for the Facilitation of International Road Transport.
There is further scope for strengthening cooperation between ESCAP and the Asian Development 
Bank in the identification and financing of priority transport infrastructure projects, including the 
completion of missing links in the Trans-Asian Railway network and upgrading of roads in the 
Asian Highway network.
Energy connectivity for energy security
During the next 20 years, Asia-Pacific energy demand is projected to grow annually by 2.4 per 
cent. Given the uneven distribution of energy resources among countries, the region clearly has 
enormous potential for increasing energy trade. Nevertheless, intraregional energy trade faces a 
number of obstacles. The most important one is the lack of infrastructure, which often prevents 
countries from accessing even domestic resources. Other impediments include the lack of a 
regional agreement setting out consistent rules of trade.
A large number of energy infrastructure projects are planned or under way in the region. Examples 
include pipelines to export hydrocarbons from the Russian Federation’s East Siberian and Sakhalin 
reserves, ASEAN gas pipelines and power grids, SAARC’s energy ring, and the Turkmenistan-
Afghanistan-Pakistan-India pipeline project.
A region-wide energy cooperation framework could encourage joint investments by buyers and 
sellers in subregional power, gas and oil grids. In this respect, the modalities developed for the 
previously mentioned intergovernmental agreements on the Asian Highway and on the Trans-
Asia Railway networks could provide useful models for the development of an integrated regional 
power grid or “Asian Energy Highway”. Cooperation could also be greatly beneficial for research on 
energy technologies, or for joint exploration ventures by regional energy companies. In addition, 
regional cooperation could boost the development, commercialization and dissemination of 
energy-efficient technologies. The ministerial-level Asia-Pacific Energy Forum, which is scheduled 
to be held in Vladivostok, Russian Federation, in May 2013, could provide the basis for a regional 
framework for energy connectivity and trade.
Information and communications technology and digital connectivity
The Asia-Pacific region has been a major beneficiary of the information technology revolution, but 
the digital divide prevails in terms of unequal access and affordability of services across countries. 
xxiv

Information technology services tend to be more expensive in the poorest countries. On average, 
less than 20 per cent of people in Asia and the Pacific have access to the Internet. Traffic volumes 
on the Internet in the region are expected to continue to increase exponentially both within and 
between subregions. The region, therefore, needs to invest in additional terrestrial fibre-optic 
cable routes and in the capacity of new Internet hub cities. As these new Internet hubs do not 
need to be clustered around the congested megacities of Asia, their establishment could provide 
opportunities for more inclusive and geographically balanced development. Overall, the region 
still lacks infrastructure commensurate with its growing global influence, or its expected surge in 
Internet traffic. This would require more systematic intergovernmental cooperation to provide an 
organizing framework for expanding ICT connectivity, including through cooperation in satellite 
technology.
Enhancing regional financial cooperation 
Asia-Pacific regional cooperation in finance has mostly been confined to mechanisms to provide 
short-term liquidity, but much potential remains unexploited. The Asia-Pacific region boasts vast 
reserves. However, these reserves are largely invested outside Asia and the Pacific in low-yielding 
securities in advanced economies. This can be attributed to the region’s poorly developed regional 
financial architecture. In addition, a substantial amount of the region’s private savings are held in 
other parts of the world. In 2008, they were valued at $7.4 trillion, accounting for 23 per cent of 
invested assets worldwide. Only 16 per cent of the Asia-Pacific portfolio securities investment ends 
up in the region owing to the small size of the securities markets. All countries would benefit from 
the pooling of regional funds to provide liquidity, boost trade financing and increase investments 
for infrastructure.
The establishment of Asian Development Bank (ADB) in the 1960s and the Asian Clearing Union 
in the 1970s are examples of initiatives taken in the region to promote financial cooperation. A 
number of new ones have been added recently. However, most of them are in early stages of 
evolution and need to be scaled upto become more effective. For example, the Chiang Mai Initiative 
Multilateralization could play a key role in assisting member countries with short-term liquidity 
support. But thus far it has hardly been utilized because of its link with the International Monetary 
Fund conditionality beyond a 20 per cent threshold. Plans are in the works, to double the size of 
the initiative’s funding from 120 billion and expand its operations to include a surveillance and 
monitoring office. However, the initiative’s coverage needs to be expanded beyond the ASEAN+3 
countries to other systemically important countries of the region and others   and set up a quick 
disbursal facility to effectively serve as a regional lender of last resort. 
The Asian Bond Fund and the Asian Bond Markets Initiative are also important initiatives to 
develop regional bond markets and mobilize financing for lesser developed countries. However, 
the scale of these initiatives needs to be expanded, and their coverage needs to be extended 
beyond ASEAN+3 countries. Therefore, it will take some time before Asian bond markets offer 
substantial sources of financing for infrastructure development.
In the area of infrastructure financing, an important recent initiative is the ASEAN Infrastructure 
Fund being set up in Malaysia with an initial equity base of $485 million and support of ADB. 
The fund aims to catalyse more than $13 billion in investments by 2020 through co-financing. In 
2010, the SAARC Development Fund was set up in Bhutan with paid-up capital of $200 million to 
finance infrastructure projects, including feasibility studies, but it also has social and economic 
windows. Investing in infrastructure across the Asia-Pacific region promises not only high rates 
of financial return, but also opportunities to diversify risk. Existing forms of investment, such as 
lending by ADB, could be complemented with a new large-scale lending facility for infrastructure. 
This facility could help coordinate other sources of lending such as by multilateral and bilateral 
xxv

development agencies and private financial institutions. Its backing for infrastructure projects 
could also signal opportunities to private investors. As a regional body, the facility could also be 
in a position to keep track of intraregional spillovers and finance economically significant cross-
border projects. Another possible function of the facility could be to provide advisory services 
and technical assistance. Its capital base could be funded by contributions made by central banks 
and funds raised through issuing bonds. The ESCAP secretariat is already engaged in elaborating 
elements of a regional financial architecture for supporting infrastructure investment, including 
the cross-border listing of equity and bonds by companies from across the region.
Economic cooperation for addressing shared vulnerabilities and risks 
Not only can greater regional integration help countries capitalize on their strengths, but it can 
also help them address shared vulnerabilities, notably food insecurity, disasters, pressures on 
natural resources, social exclusion and rising inequalities.
Food security
In the past half-century, Asia and the Pacific has made tremendous progress in food security. 
Nevertheless, the region still faces persistent poverty and hunger. The main obstacle is not an 
overall lack of food. The problem is that many people are not consuming enough of that food. 
They are prevented from doing so by many factors, including poverty, natural disasters, conflict 
and war, poor access to resources, lack of employment opportunities, lack of education and 
underinvestment in agriculture as well as instability in the world food and financial systems.
Given that neighbouring countries share many resources critical to the production and distribu-
tion of food, food security also has strong regional dimensions. The High-Level Task Force on 
the Global Food Security Crisis indicated the following potential areas of regional cooperation: 
regional food reserves, information systems, cooperation in agricultural research, managing 
transboundary resources, and building regional agricultural markets. Asia and the Pacific is very 
diverse in food production, providing the region with considerable scope for collaboration. Thus, 
the challenge is to harness the region’s assets into a cohesive strategy.
Dealing with disasters 
The world seems to be increasingly affected by natural hazards. As populations grow, more people 
live in disaster-prone areas. As a result, the number of those affected by disasters tends to rise, 
though this may also reflect improved reporting. 
Some disasters have a regional impact simply because natural phenomena extend across wide 
geographical areas. But the impacts of disasters can also be extended by growing economic 
interdependence. The 2011 floods in Thailand, for example, damaged factories belonging to one 
of the world’s largest manufacturers of hard disks, severely affecting global computer supplies.
Most countries in the region have, to some extent, established national policies, legislation, or 
plans to prepare for and cope with disasters. Asia and the Pacific would also benefit from more 
comprehensive regional agreements and cooperation. Better management of transboundary 
river basins, for example, can prevent floods in neighbouring countries. The response to tsunamis 
also calls for regional cooperation to develop effective early-warning systems.
Regional and transboundary cooperation in developing adaptation strategies can bring mutual 
benefits to all countries, for example, by reducing uncertainty through exchanges of data and 
information. Cooperation can also widen the knowledge and information base, increasing the 
options for prevention, preparedness and recovery, and thereby arriving at better and more cost-
effective solutions.
xxvi

Pressures on natural resources and sustainability
Rapid economic growth in Asia and the Pacific has put greater pressure on natural resources. With 
limited per capita endowments, the region is particularly vulnerable to disruptions associated 
with volatile energy and resource prices, land use changes and climate change. Notably, these 
disruptions are becoming increasingly interconnected.
Some of the most significant pressures arise from rising demand for energy, which is projected to 
increase by about 34 per cent over the next decade. In addition, there are threats to biodiversity, 
sulphur dioxide emissions, the rapid accumulation of solid waste, and the increasing prices of 
many natural resources. As of 2005, the latest year for which these data are available, Asia and 
the Pacific was the world’s largest user of resources, consuming 35 billion tons per annum of key 
materials such as biomass, fossil fuels, metal ores and industrial and construction materials – 
amounting to 58 per cent of the global use of resources.
Recognizing that these challenges to sustainability pose threats to economic growth and poverty 
reduction, the region’s leaders have been developing regional responses. One of the important 
approaches involves the promotion of Green Growth. This will require technological innovation to 
improve eco- and resource efficiency.
In this context, a key priority is the development, commercialization and transfer of material- 
and carbon-efficient technologies and promoting lifestyle changes to reduce the material- and 
carbon-intensity of consumption.
The areas in which regional cooperation could help promote environmentally sustainable 
technologies include: creating a critical mass of skills, enabling the growth of low-carbon 
technologies; encouraging collaboration in research; developing regimes for intellectual property; 
establishing innovation hubs; and designing incentives to encourage technological switchover.
Addressing sustainability risks
The Asia-Pacific regional preparatory meeting for the United Nations Conference on Sustainable 
Development (UNCSD) – Rio+20 held in October 2011 underlined the need for regional cooperation 
to “facilitate technological innovation and transfer and promote access to green technologies at 
affordable costs”. A recent review of country submissions to the UNCSD secretariat confirms that 
technology transfer and capacity building are among the top priority issues.
Technological innovations are not only needed to improve eco- and resource efficiency. They are 
also critical to ensuring food security through the development of sustainable agriculture practices 
and to enhance the effectiveness of monitoring and early warning systems to reduce disaster risks. 
To maximize the effectiveness of the region’s response to these interlinked challenges, the creation 
of a region-wide body named “Asia-Pacific Technology Development Council” (APTECH), could 
be considered. APTECH would serve as a regional apex body of national innovation institutions 
to foster cooperation and coordination in innovation to address common issues and shared 
problems with sectoral bureaus. It would promote cooperation in pre-competitive research and 
development with a fund for implementing joint innovation proposals. The intellectual property 
would be owned by APTECH and shared freely with members for onward sharing with national 
and regional enterprises for further competitive research.
Addressing social risks 
Despite the region’s economic dynamism, the number of people living in extreme poverty, 
suffering from hunger and lacking sufficient access to sanitation, education, health and financial 
services is still enormous. In addition, income inequality has increased, with the population-
xxvii

weighted mean Gini coefficient for the entire region increasing from 32.5 per cent in the 1990s 
to 37.5 per cent in recent years. These two phenomena are related for a number of reasons. First, 
economic growth in the twenty-first century puts a premium on educated individuals who are 
not only literate but also adept at using modern ICT.  When professionals and skilled workers are 
scarce in rapidly growing economies, their real wages tend to increase significantly faster than 
average, contributing to an increase in income inequalities. Second, there is much evidence that 
poverty and social deprivations, such as lack or insufficient access to basic sanitation, education 
and health services, play a large role in determining health outcomes – and thus the potential to 
engage fully in employment activities – across the population. In sum, economic growth is not 
necessarily the tide that lifts all boats. 
A key objective of regional economic integration schemes is to narrow development gaps and 
bring about convergence in the levels of economic development of its participants through 
the optimal deployment of the region’s resources. The objective of achieving a balanced and 
equitable regional development also creates conditions for a more enthusiastic participation of all 
partners, including those with scarce productive capacities. Some studies suggest that increased 
trade by itself, even if balanced, does not ensure economic development. Thus, growth in trade 
must be accompanied by complementary development policies, including investment, especially 
in infrastructure and other public goods such as education and research and development, and 
regional and sectoral programmes.
Many existing regional trading arrangements include balanced regional development and social 
cohesion policies. Apart from special and differential treatment provisions in favour of developing 
and least developed countries, which are normally incorporated in trade liberalization schemes, 
the regional trade and economic cooperation arrangements for Asia and the Pacific proposed in 
this study should be accompanied by the creation of regional development funds for promoting 
balanced regional development, the enhancement of infrastructure and connectivity and 
technological capability-building in the relatively poorer regions. With these steps accompanying 
the programmes of regional economic integration, regionalism in Asia and the Pacific would 
hopefully become a model of an inclusive, balanced, equitable and participatory development 
process for other regions to emulate.
Towards a broader and comprehensive framework
An ambitious agenda of regional economic integration would need a comprehensive institutional 
architecture. This could include the following elements:
A summit level body – An ”Asia-Pacific Economic Summit” would be in charge of setting up the 
region’s agenda and providing direction for its implementation.
Ministerial councils – These would focus on trade and investment, finance, transport, energy, food 
security and agriculture, environment, disaster risk reduction and technology and would give 
directions to respective senior officials committees. 
Consultative Committee of Subregional Associations  –  This would bring together all subregional-
bodies to facilitate mutual learning.
People-to-people contacts – Regional associations can organize interactions for all different 
professions. These should include an Asia-Pacific Business Advisory Council and an Asia-Pacific 
Network of Think Tanks.
xxviii

The elaborate institutional architecture proposed here would need a secretariat to service it. 
ESCAP secretariat, being the universal and multidisciplinary intergovernmental body of Asia and 
the Pacific could be strengthened to provide secretariat services to APES, ministerial councils and 
their senior officials level operational bodies. In addition, the ESCAP secretariat would work closely 
with the ADB, the other key regional development organization with overlapping membership 
and committed to regional economic integration, especially in areas such as financial cooperation, 
infrastructure development and connectivity, trade facilitation, environment and technology 
development.
In December 1963, the First Ministerial Conference on Asian Economic Cooperation, held in Manila 
under the auspices of the Economic Commission for Asia and the Far East (ECAFE) as ESCAP was 
known then, endorsed a proposal to establish a regional development bank for Asia. To celebrate 
the fiftieth anniversary of that conference, ESCAP could convene the Asia-Pacific Ministerial 
Conference on Regional Economic Cooperation and Integration in 2013. This conference would also 
present an opportunity to review and discuss possible ways to implement the recommendations 
contained in this study and take steps to implement them, as appropriate, with the goal of turning 
the 21st Century into an inclusive and sustainable Asia-Pacific Century!
xxix


CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific

hot
UNDP P
1


One The case for regional economic 
integration in Asia and the Pacific 
The Asia-Pacific region’s rapid growth since the 1950s 
had been supported by a favourable external economic 
environment and opportunities arising from globalization. 
This, however, has changed dramatically in the aftermath 
of the global financial crisis of 2008-2009. In the new global 
environment, sustaining the region’s growth and realizing 
the Asia-Pacific century critically depend on its ability to 
harness the potential of regional economic integration.  

Compared with other parts of the world, regionalism has 
been slower to take off in Asia and the Pacific. As a result, the 
region still has many underexploited opportunities for taking 
advantage of the multiple complementarities among its diverse 
economies. In addition to sustaining levels of growth, this should 
also enable the region to achieve a more balanced social and 
economic development – as its lagging economies are poised to 
be boosted by closer connection and integration with economic 
growth poles such as China and India. 
Close regional cooperation brings many other benefits, such 
as helping to foster peace between neighbouring countries 
and allowing them to address shared vulnerabilities and risks. 
It should also enable them to participate more effectively in 
global economic governance by exercising a degree of influence 
commensurate with their rising economic weight.
Re-emerging Asia and the Pacific 
Though the economic rise of Asia and the Pacific may seem to 
be a modern phenomenon, it is in fact a re-emergence. Through 
previous millenniums up to the early part of the nineteenth 
century, the Asia-Pacific region dominated the global economy. 
Until 1820 Asia generated more than half of the global GDP, 
with China and India accounting for one-quarter each. Then, 
following the era of colonialism the region witnessed a period of 
relative stagnation, with its global economic share declining to 
22 per cent in 1913 and 16 per cent in 1950.1  As a result, in the 
1960s there were some pessimistic assessments of the region’s 
economic prospects.2  
2


CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific
FIGURE TITLE
I.1. 
Real rates of growth of GDP, Asia-Pacific economies and advanced economies
Source:  ESCAP based on United Nations Statistical Division, National Accounts Main Aggregates database; and International Monetary Fund, 
World Economic Outlook database (accessed 10 March 2012).
But the pessimists were proved wrong. The 
America and Japan, China and India would 
economic revival in Asia started in Japan, 
be among the world’s top four economies.5  
whose economic growth in the 1950s and 
Subsequent revisions have suggested that 
1960s had boosted the region’s share in the 
they could achieve this prominence even 
world economy to 20 per cent in 1970. Japan 
more swiftly.6 In a similar vein, a 2011 study 
was followed by the newly industrializing 
supported by ADB projected that between 
economies (NIEs) – the Republic of Korea; 
2010 and 2050 the region’s share in global 
Singapore; Hong Kong, China; and Taiwan 
GDP would rise from nearly 28 to more than 
Province of China – in the 1970s and by 
52 per cent, with China accounting for 20 per 
Indonesia, Malaysia, the Philippines and 
cent and India for 16 per cent.7
Thailand in the 1980s. This “Asian miracle” 
increased the region’s share of global GDP to 
This economic dynamism has helped lift 
28 per cent in 1990.3 Then, with the region’s 
hundreds of millions of people out of poverty 
most populous countries, China and India, 
– a pace of poverty reduction unparalleled in 
joining the growth bandwagon in the 1990s 
human history. If these trends continue, the 
and 2000s the Asian share of the world GDP 
region could eventually eliminate the world’s 
increased to as much as 39 per cent in 2008. 
largest concentration of poverty. 
Because of the region’s fast growth (figure 
I.1), the centre of gravity of global economic 
But this cannot be taken for granted. The 
activity has been shifting decisively to the 
promise of the Asian century might not 
East.4
materialize. After the global financial crisis of 
2008-2009, countries in Asia and the Pacific 
This shift is expected to continue during the 
have found themselves in a very different 
twenty-first century, which commentators 
economic environment. As well as producing 
have referred to as the ”Asian century”. One 
more goods, they will also need to provide 
assessment in 2003, for example, indicated 
more of their own markets for them. 
that by 2050, along with the United States of 
3

Fac tors contributing to A sia n 
to exploit relatively soft intellectual property 
dynamism
protection regimes.9 In addition, during 
this period they did not face constraints on 
Economic success in Asia, in particular in East 
the use of natural resources or the threat of 
Asia, was due to many factors. Importantly, 
climate change. 
these countries invested significantly in 
human resources, while supporting the 
private sector and promoting technology 
A challenging new context for the 
and innovation. They also aimed for 
region
macroeconomic stability, while achieving 
pragmatic balances between the roles of 
Now these developing economies face a 
states and markets and between export 
very different global environment. Firstly, the 
promotion and import substitution.
growth of imports of the United States and 
the euro zone economies from Asia and the 
Other factor that contributed to the region’s 
Pacific is unlikely to revert to the pre-crisis 
dynamism was access to technology, finance 
trend. These Western economies, which are 
and markets of the Western advanced 
still recovering from the 2008 global financial 
economies. Japan, for example, received a 
crisis, face a subdued and uncertain outlook10 
great boost from procurement by the United 
and have large public debts and ageing 
States in the wake of the Korean War. Later, the 
populations. They also have limited carbon 
Republic of Korea benefited from the United 
space. Having contributed about 70 per cent 
States procurement in the wake of the war in 
of the current global stock of greenhouse 
Viet Nam. Similarly, during the Cold War era, 
gases, they will have to drastically reduce 
the NIEs of Taiwan Province of China; Hong 
their share of emissions. As a result, although 
Kong, China; and Singapore, all close allies of 
the advanced economies of the West will 
the United States, received substantial help 
remain important markets, they are unlikely to 
from the West in the form of ready markets 
remain the Asia-Pacific region’s main engine 
for their products. The NIEs also benefited 
of growth.
greatly when the advanced economies of 
the West, and later Japan, relocated some of 
In addition, since the completion of the 
their industrial production, especially labour-
Uruguay Round of the GATT, Asia-Pacific 
intensive manufacturing. 
countries have faced a restricted policy 
space with tightened intellectual property 
Subsequently, many of these industries moved 
regimes and reduced opportunities for 
to China, which offered cheaper labour. And 
imposing performance requirements on 
during the first decade of this century, China 
foreign investors. Nor is there much prospect 
was able to take advantage of a buying spree 
of further multilateral trade liberalization. The 
by American consumers, which enabled it to 
WTO Doha Round has been in a stalemate for 
generate enormous external trade surpluses. 
more than a decade. Indeed, the trend seems 
Over the same period, India too was able to 
to be towards greater protection in the form, 
benefit from Western outsourcing, notably for 
for example, of penalties on outsourcing, 
information technology (IT) services.
rising visa fees for immigrant workers, the 
Until 1995 and the completion of the Uruguay 
imposition of countervailing duties on 
Round of the General Agreement on Tariffs 
developing country products and unilateral 
and Trade (GATT) negotiations, most Asia-
carbon taxes on foreign airlines.11
Pacific developing economies were able 
to take advantage of multilateral trade 
At the same time, the faster-growing emerging 
agreements without having to offer much in 
economies in the region need to deal with 
return. Seeking to build productive capacities 
surges of short-term capital inflows which 
and export-oriented industries, they were, for 
threaten the stability of financial and capital 
example, free to protect infant industries and 
markets.12 The more vulnerable economies 
offer subsidies, while requiring that foreign 
also face the prospect of reduced inflows from 
investors meet requirements on local content 
development assistance, which fell globally 
and export performance.8 They were also able 
between 2010 and 2011 by 3 per cent.13 
4


CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific
Rising inequality threatens social 
weighted mean Gini coefficient for the region 
cohesion
as a whole increased from 32.5 to 37.5, and 
only 10 of the 25 countries that enjoyed 
The region has made significant progress 
positive annual economic growth succeeded 
towards achieving many of the Millennium 
in reducing income inequality. This rise in 
Development Goals, particularly in reducing 
inequality partly reflects the transition from 
poverty (figure I.2); between 1990 and 2009, 
agriculture to industry and services, in which 
the mean headcount poverty ratio fell from 
there are more significant wage differentials, 
50 to 22 per cent.14 But Asia and the Pacific 
as well as rapid technological change, which 
is still home to close to one billion people 
puts a premium on higher levels of education 
living on less than $1.25 a day. Indeed, the 
and leaves fewer opportunities for low-skilled 
bulk of the world’s deprived people, including 
workers. At the same time, workers have 
those without access to sanitation and 
experienced a decreased bargaining power.16 
undernourished children, live in the Asia-
Pacific region (figure I.3).15
Inequalities in income are accompanied by 
inequalities in access to sanitation, education, 
Although economic growth has led to an 
health services, food, electricity and credit. 
increase in the incomes of the poor, the 
There are also marked differences between 
incomes of the rich have increased more 
households in urban and rural areas, between 
swiftly. As a result, the region is now facing 
women and men, and between different social 
rising inequality  with potential threats to social 
and ethnic groups. Indeed, socioeconomic 
cohesion. Since the 1990s, the population-
FIGURE TITLE
I.2. 
Country groups on and off track for the MDGs
Source:  ESCAP, ADB and UNDP, Asia-Pacific Regional MDG Report 2011/12, table I-1, p. 9 (Bangkok, United Nations and ADB, 2012).
5


FIGURE TITLE
I.3. 
The Asia-Pacific share of the developing world’s deprived people
Source:  ESCAP, ADB and UNDP (2012). 
inequalities could be a significant obstacle 
number of countries, notably Thailand and 
for the achievement of the Millennium 
Pakistan. Overall, the damages and losses for 
Development Goals.17  The connection  the Asia-Pacific region in 2011 were at least 
between income and socioeconomic  $267 billion.19 Disasters typically hit the poor 
inequalities is discussed in chapter five.  
and most vulnerable hardest, because they 
tend to live in the most exposed areas. 
The region’s rising inequality and persistent 
development gaps between and within 
Natural disasters do not respect national 
countries do not augur well for social 
borders and often affect a number of countries. 
cohesion, peace or stability, and could lead 
But even when the physical damage is limited 
to friction between countries and hamper the 
to one country, by disrupting the operation of 
process of growth itself. 
global supply chains their economic impact 
Disaster risks
can be transmitted to other countries across 
the region. For example, the 2011 earthquake 
A further concern in the years ahead is that 
and tsunami in Japan affected auto and 
many more people in the Asia-Pacific  region 
electronic industries across the region 
are  likely be exposed to natural disasters. Asia 
through the scarcity of some critical parts. 
and the Pacific is the world’s most disaster-
Similarly, the floods in Thailand shut down a 
prone region. During the period 1980-2009 it 
major producer of hard-drive components, 
accounted for 45 per cent of global disasters, 
affecting both regional and global computer 
42 per cent of the economic losses from 
industries. Droughts and floods often result 
disasters, and 86 per cent of disaster-related 
in crop losses, potentially increasing regional 
deaths.18 In 2011, a number of countries were 
and global food prices and heightening food 
severely affected by natural disasters, starting 
insecurity. The 2010 flood in Pakistan is a 
with the earthquake in Christchurch, New 
prime example of this.
Zealand, followed by the earthquake and 
tsunami in Japan, and severe flooding in a 
Therefore, Asia-Pacific countries  need to invest 
more in disaster risk reduction, particularly in 
6

CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific
those areas where rapid economic growth 
develops alternative engines of growth, its 
has heightened risks. They will also need 
growth rate will slow below what is needed 
to develop effective early warning systems 
to reduce poverty sufficiently and to provide 
and plans for disaster management and 
enough decent jobs for its burgeoning youth 
recovery.20 As the problems and impacts of 
population. The current slowdown of China, 
natural disasters often go beyond national 
India and other economies in 2011-2012 
boundaries, addressing them through  highlights the urgency of this issue.
regional cooperation would be most effective. 
Turning development gaps into engines of 
Pressures on natural resources  
growth
A significant constraint on economic growth 
One of the most promising reservoirs of 
in Asia and the Pacific, as elsewhere, has 
domestic demand is the region’s ”bottom 
been the recent rise in commodity prices – 
billion” people currently living in poverty. 
much of which reflects the region’s rapidly 
To join the mainstream of Asia-Pacific 
increasing demand.21 Between 2000 and 
consumers, their purchasing power must 
2008, the region’s share of global energy 
be boosted. This will require broad-based 
use, for example, increased from 39 to 45 
investment in education, health services, 
per cent.22 In addition, the threat of global 
social protection and basic infrastructure, 
warming will reduce both global and regional 
which will facilitate access to employment 
carbon space. Economic growth in Asia and 
and business opportunities for all social 
the Pacific thus needs to be sensitive to 
groups. From this perspective, social policy 
environmental sustainability – undertaking 
should not be viewed as an expense but as 
technological innovations to reduce the 
a strategic investment that, in addition to 
use of energy and other resources and re-
promoting social justice, would sustain the 
orienting lifestyles towards low-material and 
region’s growth. Closing the Millennium 
low-carbon consumption paths.
Development Goals gaps would require an 
investment of $639 billion.25 
Regional integration for an inclusive 
Another important investment opportunity 
and sustainable Asia-Pacific century
is infrastructure. Across the region, there are 
These and other constraints could well 
some striking contrasts in the availability of 
affect future growth in Asia and the Pacific. 
the infrastructure that is critical for economic 
Indeed, a number of middle-income Asia-
and social development. These disparities are 
Pacific economies could face long periods 
reflected in ESCAP’s composite infrastructure 
of slow growth that would leave them in a 
index, which indicates striking contrasts 
”middle-income trap”. This is suggested by 
between developed economies such as 
the experience of NIEs, such as Malaysia, 
Singapore and Japan and least developed 
the Philippines and Thailand, which have 
countries (LDCs) such as the Lao People’s 
experienced relatively slow growth rates since 
Democratic Republic, Nepal, Papua New 
the 1997 Asian financial crisis. Recent analysis 
Guinea and Solomon Islands (figure I.4). 
by the Asian Development Bank estimates 
Closing the infrastructure gaps across the 
that in these circumstances Asia’s GDP in 
region would require investments of the 
2050, instead of reaching the projected 52 per 
order of $8 trillion over a decade, or about 
cent of the global GDP under the ”Asia-Pacific 
$800 billion per annum.26
century” scenario, would reach only 31 per 
If these investments were to be funded, they 
cent.23 
could provide another substantial source of 
Sustaining growth in the future will require 
aggregate demand, while contributing to a 
rebalancing the Asia-Pacific economies so 
more equitable and geographically balanced 
that they  rely less on exports to the developed 
pattern of regional development. 
countries and more on domestic and regional 
sources of demand.24 Unless the region 
7


FIGURE TITLE
I.4. 
Infrastructure index, selected economies
Source:  ESCAP, based on ESCAP,  Economic and Social Survey of Asia and the Pacific 2010 (Sales No. E.10.II.F.2), figure 61,  p. 135 .
Building productive capacities in the 
Chiang Mai Initiative. But there are many other 
poorest economies
shared concerns. One is energy security – the 
provision of energy at affordable prices. This 
The greatest opportunities for the least 
could be fostered by a number of measures 
developed countries will arise from  such as linking production and consumption 
establishing closer links with the region’s 
centres through power grids and oil and gas 
growth poles – China and India. Regional 
pipelines, joint technology development 
integration usually leads to a process called 
programmes for non-conventional sources 
“efficiency-seeking industrial restructuring”. 
of energy, and the development of a regional 
While such processes allow domestic and 
energy market. Another vulnerability is 
foreign firms to exploit economies of scale and 
the pressure on natural resources, which is 
specialization and save in labour or materials 
pushing up commodity prices. In response, 
costs, they can also provide many benefits 
countries in Asia and the Pacific could pool 
for poorer countries, particularly through 
resources to develop material-saving and 
building productive capacities. The process 
low-carbon technologies. Food security is a 
of efficiency-seeking industrial restructuring 
further shared concern; regional responses 
could also help Asia-Pacific countries avoid 
could include pooling resources for joint 
falling into the middle-income trap. 
research. 
Addressing shared vulnerabilities
Fostering peace and stability
Regional integration can also help Asia-Pacific 
By deepening mutual interdependencies and 
countries address shared vulnerabilities and 
opening up more spaces, formal and informal, 
risks, many of which are economic. The 1997 
for cross-country dialogue, regional economic 
Asian financial crisis, for example, started in 
integration can promote greater mutual 
Thailand and then spread across East Asia, 
understanding, help in resolving conflicts and 
highlighting regional interdependencies – 
usher peace and stability.27
and prompting a response in the form of the 
8

CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific
Giving a voice to the region in international 
ASEAN region. These historical roots provide 
forums
a strong basis for establishing an Asia-Pacific 
community.28
Finally, regional cooperation and integration 
would enable Asia and the Pacific to exercise 
Synergies for mutually beneficial 
influence in global economic governance 
cooperation
commensurately with its growing economic 
weight. The region would thus be in a stronger 
Fruitful integration requires synergies or 
position to shape the emerging global 
complementarities based, for example, on 
economic order in tune with its development 
diverse factor endowments or specializations. 
requirements. 
Some of these will be the result of differing 
levels of development. Asia and the Pacific 
includes high-income countries such as 
Conditions for fruitful integration
Japan, Australia, New Zealand, and the 
Regional economic integration is more likely 
Republic of Korea, which are members of the 
to be successful when the process can be 
Organisation for Economic Co-operation and 
grounded in a shared history and culture. 
Development (OECD), and at the other end of 
Exchanges are facilitated when countries have 
the scale a number of low-income and least 
complementarities in factor endowments 
developed economies. This diversity opens 
that can be shared to mutual benefit. And 
up opportunities for mutually beneficial 
integration based on trade would be more 
exchanges of development experiences. 
fruitful if it opens up large and growing 
There are also complementary factor 
markets.
endowments. Some economies in East 
Shared history, culture and values
Asia have abundant capital but rapidly 
ageing workforces. Others, particularly in 
Many areas of the Asia-Pacific region have 
South and South-East Asia, may have less 
distinct identities shaped by centuries of 
capital but should for the next few decades 
history and cultural exchanges. In Asia, much 
benefit from a demographic dividend of 
of this has been rooted in trade – starting with 
a young and growing workforce. Regional 
the famed Silk Routes of two thousand years 
economic integration should thus enable 
ago. Trade in goods has been accompanied by 
labour-intensive industries to gravitate to 
a vibrant exchange of ideas. Another notable 
labour-abundant countries where they can 
unifying factor has been shared religious 
help build productive capacity. Meanwhile, 
beliefs. The impressive cultural sites of Bagan 
labour-scarce economies can specialize in 
in Myanmar, Borobudur in Indonesia, and 
the production of capital- and knowledge-
Angkor Wat in Cambodia are a testimony to 
intensive goods. 
the vast trading and cultural networks that 
Asia had in ancient times.
Another area of complementarity is 
finance. China and Japan, for example, have 
This long history of interaction is also notable 
accumulated sizeable foreign exchange 
in that it has been accompanied by few major 
reserves which they are investing in the United 
conflicts between countries. India and China 
States and Europe, often at relatively low 
have, for example, over the centuries been 
rates of return. Countries concerned about 
highly developed nations – economically, 
the future value of these assets could instead 
militarily, ideologically and culturally. They 
invest more productively closer to home – 
could have been competitors for dominance. 
in infrastructure development projects that 
Yet that has not happened. Indeed, the history 
currently remain underfunded despite high 
of their relationship has been one of mutual 
long-term payoffs. 
respect and coexistence. Recent perceptions 
of Asia as a conflict-ridden region should 
There are also complementarities in energy 
not hide centuries of cooperation between 
production and consumption. On the one 
India, China, Japan and what is now the 
hand, economies such as Indonesia, the 
9

Islamic Republic of Iran, Kazakhstan, Malaysia, 
economy, particularly in Europe with the 
the Russian Federation and Turkmenistan have 
formation of the Single European Market and 
abundant hydrocarbon energy resources. 
in North America with the signing of the North 
On the other hand, major economies such 
American Free Trade Agreement (NAFTA). In 
as China, India, Japan and the Republic of 
comparison with earlier and shallower forms of 
Korea are highly dependent on hydrocarbon 
cooperation, these regional trade agreements 
imports. 
(RTAs) pursued free trade complemented by 
strong rules of origin and mobility of capital 
The Asia-Pacific region has also developed 
and, in the European Union (EU), mobility 
cross-country complementarities within  of labour. Subsequently, the EU deepened 
industries. East Asian countries, for 
integration, expanded its membership and 
example, have specialized in manufacturing 
progressively evolved into an economic 
and hardware while South Asian economies 
union, with some of its members forming a 
have focused on services and software. 
monetary union with a single currency. 
Recent analyses have found significant 
complementarities at disaggregated 
Other regions have pursued similar RTAs. 
industrial sectors both within and between 
In Latin America and the Caribbean, these 
subregions, with the latter being generally 
include the Common Market of the South 
higher than the former.29
(MERCOSUR), the Caribbean Community 
(CARICOM) and the Andean Community 
Large markets and a growing middle class
of Nations, and in Sub-Saharan Africa, the 
Common Market for Eastern and Southern 
Another important factor for the success of 
Africa (COMESA) and the Southern Africa 
regionalism is a large and growing market. 
Development Community (SADC). There 
With rapid economic growth, the Asia-Pacific 
are now some 300 plurilateral and bilateral 
region is emerging as the main source of final 
FTAs32 across the world and an important 
demand for the region’s exports. China and 
part of global trade is now conducted on 
India now have sizeable middle classes which 
a preferential basis.33 This also encourages 
form the world’s largest markets for a growing 
other countries to negotiate their own RTAs 
range of products and services, such as mobile 
to prevent discrimination by trading partners 
phones, motor cars and jet planes. As a result, 
that belong to existing RTAs. 
between 2000 and 2010 the proportion of 
Asia-Pacific trade that was carried on an 
During the last 20 years, there has been a 
intraregional basis rose from 48 to 54 per 
debate on the impact of RTAs on further 
cent.30 The region’s large and rapidly growing 
trade liberalization. Are they stumbling 
markets make regional economic integration 
blocks or building blocks? Recent research 
an increasingly viable development strategy. 
tends to support the view that regionalism, 
by liberalizing trade, should be viewed as a 
This would not only enable the poorer 
building block of multilateralism.34 
countries of the region to take care of their 
development challenges, such as poverty and 
RTAs also create larger markets, which are 
hunger, but would also benefit the advanced 
attractive to foreign investors. For example, 
economies of the West by absorbing more 
since the formation of the single market 
of their exports and thus help bring down 
the EU has increased its share in global FDI 
their levels of debt. Asia and the Pacific could 
inflows from nearly 30 per cent in the 1980s 
therefore become a growth pole for the 
to about 50 per cent today.35 Similarly, Mexico 
advanced economies and other developing 
has benefited from its NAFTA membership. 
regions.31
Comparing the periods 1991-1993 and 2000-
2002, annual FDI inflows increased from 
Lessons from global experience
$12 billion to $54 billion, as many industries 
relocated to maquiladora processing zones in 
Since the early 1990s, the ”new regionalism” 
the north of Mexico.36 The strong association 
has been a dominant trend in the world 
between membership in RTAs and FDI 
10

CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific
inflows has been confirmed in a number of 
moved to high income status (table I.1). Some 
quantitative studies.37 Mexico also benefited 
of these countries, especially Greece, Portugal 
from lower volatility in its growth rate and 
and Spain have subsequently accumulated 
a substantial improvement in total factor 
unsustainable levels of debt because of 
productivity.38 
imprudent financial management and are 
currently facing serious economic difficulties. 
Even more important than providing larger 
But this is more the result of financial 
markets, RTAs help strengthen overall 
mismanagement – and a demonstration that 
competitiveness by enabling intraregional FDI 
monetary union needs to be complemented 
to achieve extensive industrial restructuring 
by fiscal union. 
or rationalization. Therefore, most RTAs now 
extend their scope beyond trade to include 
Even though the Asia-Pacific region is a recent 
investment liberalization and facilitation. 
entrant in the area of regional economic 
This means, for example, that multinational 
integration, the experience of some of its 
enterprises (MNEs) no longer need to 
countries fit the pattern observed from other 
maintain horizontal national operations 
regions. For instance, Cambodia, Lao People’s 
and instead can assign the responsibility 
Democratic Republic and Viet Nam, which 
for serving specific regional or even global 
joined ASEAN in the 1990s, have seen their per 
markets in particular products to certain 
capita income levels rapidly moving towards 
affiliates to harness economies of scale and 
the ASEAN average (figure I.5, panel A). In 
specialization – a strategy sometimes called 
addition, the share of these three countries 
”product mandating”.39
in ASEAN’s cumulative FDI inflows increased 
rapidly in the mid-1990s and late 2000s (figure 
Deeper integration encourages industries 
I.5, panel B)
to migrate to low-wage locations to the 
advantage of the lesser developed economies. 
In South Asia, the India-Sri Lanka FTA signed 
In the EU the poorer members have benefited 
in 1998 can be taken as an early experiment 
from resource transfers, but they have 
in regional economic integration. Between 
also gained significantly from industrial 
2000, when the FTA became effective, and 
restructuring. For instance, after joining the 
2005-2006, India’s exports to Sri Lanka rose 
European Economic Community in 1973, 
annually on average by 34.5 per cent while 
Ireland increased its per capita income from 
those of Sri Lanka to India grew by 132 
59 per cent of the European average to over 
per cent. As a result, Sri Lanka’s imports to 
100 per cent by 1998.40  Both Ireland and other 
exports ratio fell from 10.3:1 to 3.3:1 over this 
countries that joined the EU since the 1980s 
period. In addition, the number of Sri Lankan 
such as Greece, Portugal, Spain, Slovenia and 
export items tripled with a notable shift from 
the Czech Republic are also among those that 
agricultural products to high-value added 
managed to avoid the middle income trap and 
manufacturing goods such as tea, sausages, 
TABLE TITLE
I.1. 
Transitions from middle-income to advanced-country levels
Income per capita 
Income per capita 
Growth phase in 
at start 
at end
Growth per annum 
Country
transition
(US dollars, PPP)
(US dollars, PPP)
Time in years
in transition
Cyprus
1994-2004
15 002
23 736
10
4.8
Czech Republic
2000-2007
14 960
24 279
7
7.2
Finland
1988-2000
14 920
24 441
12
4.2
Greece
1995-2004
14 957
24 059
9
5.4
Ireland
1993-1998
14 934
23 520
5
9.5
Portugal
1997-2008
15 574
23 093
11
3.6
Slovenia
1998-2005
15 412
23 388
7
6.1
Spain
1991-2001
15 027
23 421
10
4.5
Sweden
1987-1998
15 722
23 468
11
3.7
11
Source:  Reisen (2011) based on data from IMF, World Economic Outlook database. 


FIGURE TITLE
I.5. 
Performance indicators of Cambodia, Lao People’s Democratic Republic and Viet Nam, in comparison with 
ASEAN, 1992-2010
Source:  ESCAP based on data from World Bank, World Development Indicators database.
Note:  Myanmar and Brunei Darussalam are not included in the total for ASEAN because of missing GDP data for these countries. Cumulative FDI 
inflows is the sum of FDI inflows between 1992 and subsequent years.   
biscuits, chocolates, ceramics, furniture, metal 
But in the 1990s views started to change. 
products, footwear, wooden toys, herbal 
This was partly due to the slow progress of 
products, memory chips, and machinery and 
multilateral trade negotiations and the rise of 
mechanical appliances, many of which are 
regionalism elsewhere. More importantly, the 
produced with FDI from India. Around three-
Asian financial crisis of 1997 highlighted the 
quarters of Sri Lanka’s exports have been 
economic interdependences of a number of 
undertaken within the framework of FTA 
countries. This led to the Chiang Mai Initiative 
preferences. Finally by 2004-2005 India was 
for monetary cooperation, which involves 
Sri Lanka’s fourth largest source of FDI.41
ASEAN+3 (China, Japan and the Republic of 
Korea). In the late 1990s Japan changed its 
views on trade policy, recognizing that RTAs 
Emerging regional economic  could advance its interests.43 Since then, the 
integration in Asia and the Pacific
region has undertaken a series of initiatives 
The Asia-Pacific region has been a relatively 
towards regional economic integration.
late-starter with regard to regional economic 
integration. There were some significant 
One of the most significant forums has been 
achievements in this area during the 1970s, 
ASEAN. Although set up in 1967, this forum 
including the signing in 1975 of what is now 
involved relatively little economic cooperation 
the Asia-Pacific Trade Agreement (APTA), 
until the signing in 1992 of the ASEAN Free 
and the creation in 1974, also under the 
Trade Agreement whose implementation 
auspices of ESCAP, of the Asian Clearing 
was accelerated to 2002 from 2008 in the 
Union.42 In general, however, the Asia-Pacific 
aftermath of the Asian crisis. Member 
economies retained a deep and abiding faith 
countries further deepened cooperation with 
in multilateralism. 
the ASEAN Economic Community planned to 
be established in 2015. 
12

CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific
Similarly, the South Asian Association for 
subregions. Therefore, for capital, people and 
Regional Cooperation (SAARC) came into 
natural resources to be deployed optimally, 
being in 1985 but did not adopt a programme 
they should be able to work within a broader 
of economic cooperation until 1991 when 
regional framework.44 This can be achieved by 
it formed the Committee on Economic 
coalescing bilateral and subregional FTAs. In 
Cooperation. In 1995, the members created 
this respect, ASEAN has taken some exemplary 
a SAARC Preferential Trading Agreement and 
initiatives to bring together countries from 
in 2004, they eventually agreed to create a 
different subregions. Since 2002, ASEAN has 
SAARC Free Trade Area to be implemented 
upgraded its dialogue partnerships with 
over 10 years starting in 2006. At a summit in 
neighbouring countries to an annual summit 
Bhutan in 2010, SAARC members adopted a 
level that has fostered numerous arrangements 
SAARC Agreement on Trade in Services and 
for regional and bilateral free trade that are at 
established the SAARC Development Fund. 
different levels of implementation. It has, for 
example, negotiated “+1” RTAs with Australia, 
Another notable initiative is the Bay of Bengal 
China, India, Japan, New Zealand and the 
Initiative for Multi-Sectoral Technical and 
Republic of Korea. These economies are also 
Economic Cooperation (BIMSTEC). This spans 
engaging each other – for instance, through 
two subregions: from South Asia, it includes 
the India-Japan and the India-Republic of 
Bangladesh, Bhutan, India, Nepal and Sri 
Korea comprehensive economic partnership 
Lanka and from South-East Asia, Myanmar 
agreements, already concluded. ASEAN’s 
and Thailand. In 2004, BIMSTEC adopted 
engagement with dialogue partners has also 
a framework agreement for a free trade 
led to broader groupings. Besides ASEAN+3, 
agreement to be implemented within 10 
it also organizes an annual East Asia Summit 
years.
(EAS) which involves ASEAN and all its dialogue 
partners. EAS, which  brings together 16 of 
Initiatives in other subregions include the 
the largest and fastest-growing economies, 
Economic Cooperation Organization (ECO), 
is expected to pave the way for a broader 
initially formed in 1985 by the Islamic Republic 
regional arrangement in Asia that could be 
of Iran, Pakistan and Turkey, but later expanded 
the third pole of the world economy.45 In 
to include Afghanistan and six Central 
2007, the EAS leaders launched a track-II 
Asian countries – Azerbaijan, Kazakhstan, 
study group for examining the feasibility of a 
Kyrgyzstan, Tajikistan, Turkmenistan and 
Comprehensive Economic Partnership of East 
Uzbekistan. In 2003, the members established 
Asia (CEPEA) comprising 16 (ASEAN 10 +6) 
the ECO Trade Agreement. 
countries whose results were presented at the 
fifth EAS summit in 2009. At the Bali Summit 
In the Pacific, what is now the Pacific Islands 
in November 2011, two new members were 
Forum (PIF) was set up in 1971 and has 16 
admitted to EAS – the United States and the 
member States, including Australia and New 
Russian Federation.
Zealand and 14 independent Pacific island 
developing economies. In 2006, within the 
A further indication of the growing recognition 
framework of the 2001 Pacific Agreement for 
of broader regional economic integration in 
Closer Economic Relations, 12 members of PIF, 
Asia and the Pacific is that the region’s leaders 
also signed the Pacific Island Countries Trade 
have articulated their visions of a broader Asia-
Agreement.
Pacific community allowing exploitation of 
These subregional agreements are 
the region’s vast synergies for mutual benefit 
complemented by a number of bilateral 
(box I.1). The past decade has also witnessed 
trade agreements between countries of the 
a steady stream of studies making the case for 
subregions and across the subregions.
broader regionalism in Asia and the Pacific, 
including by the Asian Development Bank.46
Seeking broader regionalism
Gains from economic integration
As observed earlier, the complementarities 
and synergies between subregions are 
A number of recent studies have indicated the 
generally greater than those within  potential gains from economic integration. 
13

An ADB study, for example, compared 
that regional trade and integration could 
the impact of regional integration with 
offer great potential. It also concluded that 
global trade liberalization under different 
much of the gains in Asia from global trade 
scenarios to 2025.47 Using the Global Trade 
liberalization could be realized by a regional 
Analysis Project database with the World 
initiative alone. Significantly, it ascertained 
Bank’s LINKAGE model, the study found 
that the gains from abolishing global tariffs 
BOX I.1. Asia-Pacific leaders’ statements on broader regionalism
Dr. Manmohan Singh, Prime Minister of India, said at the Third India-
ASEAN Business Summit in New Delhi on 19 October 2004:
 “We envision an Asian Economic Community. (…) Such a community 
would release enormous creative energies of our people. One cannot 
but be captivated by the vision of an integrated market, spanning 
the distance from the Himalayas to the Pacific Ocean, linked by 
efficient road, rail, air and shipping services. This community of 
nations would constitute an ‘arc of advantage’, across which there 
would be large-scale movement of people, capital, ideas, and 
creativity. (…)This is an idea whose time is fast approaching, and 
we must be prepared for it collectively.”
The Chairman’s Statement at the Fourth East Asia Summit in Cha-
am Hua Hin, Thailand on 25 October 2009 included the following 
passage:
“We acknowledged the importance of regional discussions to 
examine ways to advance the stability and prosperity of the Asia-
Pacific region. In this connection, we noted with appreciation the 
following: 
a.  the Philippines’s proposal to invite the heads of other regional 
fora and organizations in Asia-Pacific to future EAS meetings 
to discuss measures that will protect the region from future 
economic and financial crisis and strengthen Asia economic 
cooperation, including through the possible establishment of 
an economic community of Asia. 
b.  Japan’s new proposal to reinvigorate the discussion towards 
building, in the long run, an East Asian community based on 
the principle of openness, transparency and inclusiveness and 
functional cooperation. 
c.  Australia’s proposal on the Asia Pacific community in which 
ASEAN will be at its core, will be further discussed at a 1.5 track 
conference to be organized by Australia in December 2009. “
Sources: Singh (2004), East Asia Summit (2009), emphasis added.
14

CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific
would be far outweighed by those resulting 
Opportunities – As western sources of 
from removing tariff and structural barriers 
aggregate demand decline, Asia-Pacific 
to Asian trade. It also concluded that regional 
countries need to rebalance their economies. 
integration would promote Asian economic 
This opens up opportunities to boost not 
convergence, raise average growth rates 
just domestic but regional consumption. 
and benefit poorer countries. In particular, 
Another opportunity arises from greater 
greater regional integration would propagate 
political and public support for regionalism 
commercial linkages and transfer the stimulus 
as is evident from the statements of different 
from the rapid-growth economies of Asia, 
leaders as well as from perception surveys. 
particularly China and India, to their lower-
The slow progress in the Doha Round of 
income neighbours. A more recent study 
multilateral trade negotiations also creates 
estimated potential welfare gains from 
space by releasing negotiators to work on 
regional economic integration within the 
regional arrangements. Businesses can 
CEPEA framework of up to $284 billion – which 
also take advantage of opportunities to 
is in tune with previous studies and larger 
reduce transaction costs caused by the 
than other regional integration schemes.48
“noodle bowl” syndrome and seek efficiency 
through industrial restructuring. Industrial 
restructuring also opens up the prospect of 
Strengths, weaknesses, opportunities 
narrowing development gaps by building 
and threats of broader regionalism 
productive capacities in poorer economies.
Broader regionalism in Asia and the Pacific 
would not only bring a number of strengths 
Weaknesses and threats – These arise from 
and opportunities but also suffer from some 
the perceived lack of strong political will and 
weaknesses and threats.
leadership. ASEAN has been a driving force but 
its first priority, understandably, is to complete 
Strengths – Many of these arise from 
the ASEAN Community. Broader integration 
complementarities. Some economies such 
is also slowed by a lack of coherence: some 
as those of Australia, Islamic Republic of Iran, 
members would prefer a less-inclusive EAFTA 
Myanmar and the Russian Federation are well 
while others vigorously oppose it in favour 
endowed with natural resources while others 
of the more inclusive CEPEA. Progress can 
depend more on imports. Some economies, 
also be slowed by bilateral political tensions 
such as those of China, Japan, and the Republic 
and sensitivities. In fact, such tensions could 
of Korea, depend more on manufacturing 
be reduced within a broader grouping. 
while others, such as India and the Philippines, 
Other weaknesses are the lack of regional 
are dominated by services. The region not only 
institutions, shallow financial markets and 
has large net exporters, such as China, Japan, 
inadequate transport infrastructure. 
the Republic of Korea and most of the ASEAN 
countries but also has net importers such 
On balance, the positive factors outweigh 
as India. The region has some of the world’s 
the negative factors. Even the political 
fastest-growing economies, including China 
differences need not be an obstacle. Indeed, 
and India, and others with large markets such 
those between Asia-Pacific countries may be 
as Japan. Collectively, the region is endowed 
less significant than those formerly between 
with natural resources as well as large human 
European countries whose leaders agreed 
and financial resources. Furthermore, the 
to set aside their differences and move 
Asia-Pacific economies have already arrived at 
ahead with economic integration. Hopefully, 
numerous bilateral and subregional FTAs that 
Asia-Pacific leaders will also appreciate 
provide valuable foundations for a broader 
the compelling arguments for deeper and 
regional grouping. Another strength is that 
broader economic integration and begin to 
many Asia-Pacific countries in the past have 
push the agenda. 
enjoyed vibrant intraregional trade and have 
centuries-old civilizational and cultural links.
15

Key elements of regional economic 
resources for investment in infrastructure 
integration
that will strengthen connectivity. 
Regional economic integration requires a 
  Addressing shared vulnerabilities 
long-term vision supported by the necessary 
and risks: Mutual cooperation will put 
frameworks and institutions. This would 
countries in a better position to respond 
involve four key elements:
to shared vulnerabilities, such as energy 
and food security, natural disasters 
 
• An integrated Asia-Pacific market: This 
and environmental sustainability – 
would involve coalescing numerous 
as well as rising inequalities, slower 
bilateral and subregional arrangements 
poverty reduction, and threats to 
into broader regional trading and 
social cohesion. The options would 
economic cooperation arrangements 
include jointly developing technology, 
open to all Asia-Pacific economies. This 
enhancing people-to-people contacts 
should be based on the principles of 
to promote better understanding and 
openness, transparency and equity. It 
sharing development experiences and 
should substantially extend to all trade, 
best practices.
and cover liberalization and facilitation 
If implemented as a part of a package, this 
of trade in goods and services and 
four-pronged plan would help realize a 
investments. It should provide for 
long-term vision by building an Economic 
flexibilities and special and differential 
Community of Asia and the Pacific. 
treatment for poorer economies and 
economic assistance for lagging areas  
In subsequent chapters, this report 
and vulnerable sections of societies. 
summarizes the modalities and institutional 
This would represent regionalism 
architecture that would be needed to 
with an a human face. The creation of 
pursue the four-pronged plan across the 
a broader market does not, however, 
region. Chapter six of the study offers a way 
mean that subregional groupings lose 
forward for the consideration of the ESCAP 
their relevance. They should continue as 
Commission.  
building blocks of the broader regional 
arrangement while pursuing their 
own programmes of trade facilitation, 
stronger connectivity, and food and 
Endnotes
energy security.
1  See www.ggdc.net/MADDISON/oriindex.htm. Asia 
  Seamless physical connectivity:  The 
is defined as China; India; Indonesia; Japan; Philippines; 
full potential of intraregional trade 
Republic of Korea; Thailand; Taiwan Province of China; 
cannot be realized without improved 
Bangladesh; Myanmar; Hong Kong, China; Malaysia; 
Nepal; Pakistan; Singapore; and Sri Lanka.
connectivity. For example, better 
surface transport, and multimodal 
2  See for example, Myrdal, 1968.
transport networks connected through 
3  See World Bank, 1993. 
dry ports, will help spread the benefits 
of industrialization to the hinterlands. 
4  Quah, 2010, of the London School of Economics, 
has prepared an animation that depicts the world’s 
Connectivity should extend to energy 
economic centre of gravity shifting from somewhere in 
pipelines and power grids and broadband 
the Atlantic in 1980 to somewhere between India and 
cables for knowledge networks. These 
China by 2050. 
connections will link lagging regions 
5  Wilson and Purushothaman, 2003. 
with growth poles and encourage more 
balanced regional development. 
6  Wilson, Burgi and Carlson, 2011, p. 3. 
  Financial cooperation: Financial 
7  Kharas and Kohli, 2011. The projections by Goldman 
cooperation can promote mutual trade 
Sachs and ADB are not comparable to the historical 
and build resilience to financial crises, 
data compiled by Maddison. The latter are adjusted by 
while also make better use of regional 
PPP using the Geary-Khamis methodology. 
16

CHAPTER  ONE
The case for regional economic integration in Asia and the Pacific
8  See Amsden, 2001; Wade, 2003; Lall, 2005; Kumar, 
29  ESCAP, 2011b, chapter 3. 
2005; Kumar and Gallagher; 2006; for evidence. 
30  See chapter two for more details.
9  See Kumar, 2003, for evidence.
31  For instance, the United States plans to double its 
10  IMF, 2012, projected growth of little over 2 per cent 
exports and increase savings in the coming years. This 
over the medium term for the advanced economies.  
objective can only be achieved if the rest of the world is 
able to absorb growing United States exports. A rapidly 
11  See e.g. Bruce Einhorn, “U.S. Senate Targets India 
growing Asia-Pacific region would create space for 
Outsourcers”, 8 August 2010. Available from www.
other regions to grow. See United States, 2009.
businessweek.com/globalbiz/blog/eyeonasia/
archives/2010/08/us_senate_targets_india_
32  WTO, 2011.
outsourcers.html; “EU’s unilateral carbon tax disturbs 
other nations”, Global Times, 22 March 2012. Available 
33  Estimates of the exact share of trade conducted 
from www.globaltimes.cn/NEWS/tabid/99/ID/701643/
on a preferential basis depend on methodological 
EUs-unilateral-carbon-tax-disturbs-other-nations.aspx.
considerations, including how to classify trades 
between partners to the same RTA on items with zero 
12  ESCAP, 2012.
most favoured nation (MFN) rates, or whether to count 
or not intra-EU trades as preferential.
13  OECD, 2012.
34  See, e.g. Menon, 2005; Baldwin and Seghezza, 2007.
14  The headcount poverty rate is defined as the share 
of the population living with less than $1.25 (in 2005 
35  See UNCTAD, 2006.
prices, adjusted by PPP) per day. See ESCAP, ADB and 
UNDP, 2012.
36  See Kose, Meredith and Towe, 2004.
15  See ESCAP, ADB and UNDP, 2012.
37  See e.g. Kuma, 2003; Medvedev, 2006 
16  ESCAP, 2012.
38  See Kose, Meredith and Towe, 2004.
17  See ESCAP, ADB and UNDP, 2012.
39  See e.g. Kumar, 2007a, for details.
18  ESCAP and UNISDR, 2010. 
40  In 1998, Ireland’s per capita income was $21,482 
compared to an average of $21,227 for the European 
19  ESCAP estimations based on data from Japan: 
Union. Figure adjusted by PPP. Source: World Bank, 
National Police Agency, the Cabinet Office; Thailand: 
2000, p. 40.
Department of Disaster Prevention and Mitigation, 
Royal Irrigation Department; New Zealand and 
41  For a detailed analysis see Kelegama and Mukherji, 
Pakistan: EM-DAT. Available from www.emdat.be/.
2007. 
20  ESCAP, 2012.
42  APTA covered reciprocal tariff concessions between 
five member States, namely Bangladesh, India, Lao 
21  ESCAP, 2010a and 2012. 
People’s Democratic Republic,  Republic of Korea and 
Sri Lanka. In 2000, China joined the APTA.
22  International Energy Agency, 2011.  Available from 
www.iea.org/textbase/nppdf/free/2011/key_world_
43  Sutton, 2005. 
energy_stats.pdf.
44  Rowley, 2004.
23  Kohli, Sharma and Sood, 2011.
45  See Kumar, 2007b and 2011, for more details.
24  See ESCAP, 2010a, 2011b and 2012.
46  See e.g. ADB, 2008 and 2011; ADB and ADBI, 2009; 
25  ESCAP 2010b, table 1.7, p. 18. 
Francois, Rana and Wignaraja, 2009; Kohli, Sharma 
and Sood, 2011; Kumar, 2004; Kumar, Kesavapany and 
26  See ADB and ADBI, 2009.
Chaocheng, 2008; among others.
27  Dumas, 2006. 
47  Brooks, Roland-Holst and Zhai, 2005.
28  See Shankar, 2004, for more details. Also see Frost, 
48  See Kumar, 2007a, for a review of simulation studies; 
2008.
CEPEA, 2008 and 2009; Kawai and Wignaraja,  2007.
17


Photo by Hanna Rubio 
18


CHAPTER  TWO
Towards a broader integrated market
UN Photo - M. Guthrie
19


Two
Towards a broader 
integrated market
The most significant forms of economic 
integration in Asia and the Pacific have been 
through trade, investment and migration. 
Many of these activities have benefited from 
various preferential arrangements, each of 
which covers a limited number of countries. To 
take fuller advantage of the region’s enormous 
opportunities, regional integration could be 
better pursued by broader arrangements that 
cover the whole region.

Asia and the Pacific is the world’s most dynamic 
trading region. Between 2000 and 2010, global 
trade increased by an annual average of 9 per 
cent, but trade within the region expanded by 12 
per cent.1 This pattern continued after the global 
financial crisis when businesses in Asia and the 
Pacific became more eager to trade with each 
other. Faced with stagnant demand in traditional 
export markets, exporters looked increasingly at 
the growing purchasing power in China, India, 
Indonesia, the Russian Federation and other Asia-
Pacific economies.
Trading opportunities
The extent of the trading opportunities is highlighted 
in figure II.1. This shows that intraregional exports 
have far outpaced those to Europe, North America 
and the rest of the world, and that they will 
continue to do so between 2010 and 2016, when 
they are expected to rise from $3.1 trillion to 
between $5.6 trillion and $6.8 trillion. Already more 
than half of Asia-Pacific trade is intraregional, with 
the proportion increasing between 2000 and 2010 
from 48 to 54 per cent (table II.1). If current trends 
continue, Asia and the Pacific would become the 
world’s largest regional market by 2012. 
20


CHAPTER  TWO
Towards a broader integrated market
FIGURE TITLE
II.1. 
Destination of Asia-Pacific exports, 2002-2016
Source: ESCAP based on data from International Monetary Fund, Direction of Trade Statistics.
Note: Forecasts for the period 2011-2016 based on gravity equation estimates of regional trade flows. See annex for details.
TABLE TITLE
II.1. 
Distribution of merchandise exports, by region, 2000 and 2010
To
Latin 
Middle East 
Percentage
North 
America and 
and North 
Sub-Saharan 
of exports from
Asia-Pacific
Europe
America
Caribbean
Africa
Africa
2000
Asia-Pacific
48.1
21.1
25.0
2.5
2.4
1.0
Europe
11.5
70.2
11.2
2.4
3.5
1.3
North America
23.5
20.0
35.3
18.3
2.3
0.6
Latin America and Caribbean
8.1
13.9
59.1
17.5
1.1
0.4
Middle East and North Africa
44.1
29.7
16.4
1.9
5.7
2.2
Sub-Saharan Africa
23.0
37.9
24.8
2.8
2.0
9.5
2010
Asia-Pacific
53.7
19.7
15.4
4.5
4.7
2.0
Europe
15.2
69.0
7.6
2.5
4.1
1.6
North America
29.4
15.3
31.3
18.8
4.0
1.3
Latin America & Caribbean
20.5
13.7
43.0
19.8
2.1
0.9
Middle East and North Africa
55.9
18.8
11.8
1.4
9.7
2.4
Sub-Saharan Africa
35.8
24.3
22.0
3.8
1.9
12.2
Source: ESCAP based on data from International Monetary Fund, Direction of Trade Statistics.
Note: The Asia-Pacific region is defined as comprising the five ESCAP subregions: East and North-East Asia, South-East Asia, the Pacific, South and 
South-West Asia (which includes Turkey and the Islamic Republic of Iran) and North and Central Asia (which includes the Russian Federation, 
Armenia, Azerbaijan and Georgia).
Within Asia and the Pacific, trade is 
and 2010, the share of the region’s exports 
concentrated in two subregions: East and 
going to these two subregions fell from 89.3 to 
North-East Asia and South-East Asia, though 
81.8 per cent. Over the same period, the share 
their share has been slipping. Between 2000 
of South and South-West Asia rose from 4.6 to 
21

TABLE TITLE
II.2. 
Distribution of Asia-Pacific merchandise exports, by subregion, 2000 and 2010
To
Percentage
East and 
South and 
North and 
of exports from
North-East Asia
South-East Asia
South-West Asia
Central Asia
Pacific
2000
Asia and the Pacific
65.8
23.4
4.6
1.5
4.7
East and North-East Asia
70.9
21.5
3.2
0.5
4.0
South-East Asia
57.5
33.4
4.0
0.2
4.9
South and South-West Asia
56.3
18.2
17.2
5.8
2.6
North and Central Asia
46.3
3.9
21.7
28.0
0.1
Pacific
63.1
16.0
4.7
0.4
15.8
2010
Asia and the Pacific
60.8
21.1
9.2
4.0
5.0
East and North-East Asia
64.4
19.6
7.2
4.3
4.4
South-East Asia
53.7
31.7
7.1
0.9
6.7
South and South-West Asia
49.0
14.3
27.4
7.4
1.9
North and Central Asia
50.4
8.2
24.9
16.0
0.6
Pacific
70.9
11.1
7.4
0.5
10.0
Source: ESCAP based on data from International Monetary Fund, Direction of Trade Statistics.
9.2 per cent and that of North and Central Asia 
economy in the region that experienced rapid 
from 1.5 to 4.0 per cent (table II.2).
trade growth; its exports grew on average by 
18 per cent annually during that time period 
Table II.2 also shows that East and North-
to reach $242 billion, or 4 per cent of the 
East Asia is the main export market for all 
region’s exports, while its imports expanded 
the Asia-Pacific subregions (including East 
by 25 per cent to $349 billion, accounting for 
and North-East Asia itself). In addition, South 
7 per cent of the region’s total in 2010. This 
and South-West Asia is now the second 
made India the region’s fifth-largest importer 
largest subregional export market for North 
after China; Japan; Hong Kong, China; and the 
and Central Asia. It is also noticeable that 
Republic of Korea.
intra-subregional trade decreased for all the 
subregions between 2000 and 2010, with the 
An export opportunities indicator
exception of South and South-West Asia, as 
export opportunities across the subregions 
Growing markets provide opportunities for 
became more important. In other words, 
both current and new exporters across the 
export opportunities between the subregions 
world. In order to assess the prospects and 
are becoming more important over time.
desirability of further trade liberalization 
within the Asia-Pacific region, a new “export 
The merchandise trade data from the region 
opportunities indicator” developed by ESCAP  
also show significant changes at the level 
identifies which markets are the most promis-
of   individual countries, with China notably 
ing for each country in the world. This is based 
surpassing Japan as the region’s largest 
on the assumption that it is easier for exporters 
exporter and importer. Between 2000 and 
to enter and expand sales in a market that is 
2010, exports from China grew at an annual 
growing than in one which is stagnant or 
average rate of 17 per cent to reach $1.83 
declining. The value of the indicator for each 
trillion, or 32 per cent of the region’s exports. 
destination country represents the potential 
Over the same period, the country’s imports 
annual increase, measured in billions of dollars, 
grew even more spectacularly, by 19 per cent 
in imports from industries in which the source 
annually, to reach $1.27 trillion, or 24 per cent 
country is internationally competitive. This 
of the region’s imports. India was another 
does not mean, of course, that the exporting 
22



CHAPTER  TWO
Towards a broader integrated market
FIGURE TITLE
II.2. 
The ten most promising export markets for Asia-Pacific countries
Source: ESCAP based on data from United Nations Statistics Division, Commodity Trade Statistics database (COMTRADE).
Note: The export oppotunities indicator represents the potential annual increase, in billions of US dollars, in the size of the export markets of each 

country visa-a-vis each of its trading partners. See Annex for details.
23

country will necessarily be in a position to 
second most promising market for the Asia-
take advantage of all this market growth 
Pacific exporters is India, which offers large 
because other countries that export similar 
opportunities for products from Georgia 
products will also try to take advantage of 
and the Russian Federation, both $8 billion, 
these emerging opportunities. Details on 
and Kazakhstan and Papua New Guinea, 
the methodology for the computation of the 
both $7 billion. For most countries the 
indicator are included in the annex.
greatest opportunities lie outside their own 
subregions.
The results of this analysis are summarized in 
figure II.2, which shows the ten most promising 
This is confirmed by table II.3, which shows 
export markets in the world for each country 
the export opportunities indicator for the 
in Asia and the Pacific. The results show that 
average country in each of the five Asia-Pacific 
China is among the top 10 export markets 
subregions. The conclusion from this table is 
in the world for all the countries in Asia and 
that, with the exception of East and North-
the Pacific. Other top 10 export markets 
East Asia, the average country stands to gain 
for countries in the region are India (for 44 
substantially more by exporting to other 
countries), Republic of Korea (for 39 countries), 
subregions than to other countries in its own 
Russian Federation (for 32 countries) and 
subregion. This observation contrasts with the 
Turkey (for 28 countries).  Exports to China 
approach to regional economic integration 
also provide the indicators with the largest 
adopted so far in Asia and the Pacific, which 
values: export opportunities in China for 
remains essentially subregional and fails to 
Japan, for example, are growing by $35 billion 
recognize the often greater potential of trade 
a year, followed by those for the Republic of 
expansion across the subregions.
Korea at $29 billion. Nevertheless, China also 
offers important export opportunities to 
It should also be noted that, on average, 
lower-income or less developed countries, 
the opportunities within Asia and the 
including the Democratic People’s Republic 
Pacific are greater than those in Europe and 
of Korea, $16 billion, Papua New Guinea, $11 
North America combined. This is illustrated, 
billion, Mongolia, $8 billion, Myanmar, $3.7 
by country, in figure II.3. For the average 
billion, Lao People’s Democratic Republic, 
country in Asia and the Pacific, the region 
$3.4 billion, and Nepal, $2.4 billion. The 
itself provides 45 per cent of the total export 
TABLE TITLE
II.3. 
Export opportunities indicator, for the average country in Asia-Pacific subregions and selected regions of the 
world
(Billions of US dollars)
To
East 
South 
Indicator
and 
and 
North 
North-
South-
South-
and 
Asia 
Rest 
of opportunities 
East 
East 
West 
Central 
and the 
North 
of the 
to export from
Asia
Asia
Asia
Asia
Pacific
Pacific
Europe
America
World
East and North-East Asia
23.3
3.7
5.3
3.6
0.8
36.8
20.8
3.9
11.8
South-East Asia
19.4
2.3
4.1
1.7
0.6
28.1
16.2
5.4
6.9
South and South-West Asia
9.1
2.1
2.8
1.9
0.5
16.5
12.9
3.6
7.0
North and Central Asia
13.5
3.1
6.1
1.0
0.7
24.4
18.1
7.9
6.8
Pacific
5.2
1.4
2.5
0.7
0.3
10.1
7.3
1.8
3.5
Asia and the Pacific
13.0
2.4
3.9
1.6
0.6
21.4
14.1
4.3
6.7
Europe
13.8
3.8
5.6
4.5
1.0
28.6
29.7
6.1
13.7
North America
32.1
6.6
11.1
4.3
1.5
55.6
40.3
10.9
16.5
Rest of the World
9.5
2.2
3.9
1.3
0.6
17.5
12.1
4.9
5.6
Source: ESCAP based on data from United Nations Statistics Division, Commodity Trade Statistics database (COMTRADE).
Note: Each row represents the export opportunities indicator of the average country in each region or subregion vis-à-vis the aggregate of 
countries in the importing region or subregion.
24


CHAPTER  TWO
Towards a broader integrated market
FIGURE TITLE
opportunities, compared to 39 per cent for 
II.3. 
Export opportunities, by country 
the United States of America and Europe 
combined. In addition, 32 of the 51 economies 
(Billions of US dollars)
shown in the figure have larger opportunities 
within the region than in the United States 
and Europe combined. While this does not 
imply that countries should ignore traditional 
export markets outside the region, it suggests 
that there is much that could be gained by 
reducing obstacles to intraregional trade. 
As might be expected, the best prospects 
are available to the largest exporting 
countries, as they tend to have a revealed 
comparative advantage in a larger range of 
products. However, the countries with the 
largest export opportunities in relation to 
their current levels of exports are all smaller 
exporters. For example, while the ratio of 
export opportunities in Asia and the Pacific 
to total exports is 0.028 for China and 0.081 
for Japan, it exceeds 10 for many economies 
including Armenia, Bhutan, Fiji, Samoa and 
Timor-Leste, among others. Examples of 
export opportunities within Asia and the 
Pacific for specific economies in the region 
include the following:
 
• Pacific island developing economies, 
such as Kiribati, Solomon Islands, Tuvalu 
and Vanuatu can benefit from the $257 
million annual growth of the regional 
market for “frozen fish, excluding fillets”, 
$159 million of which are additional 
annual imports by China, $50 by the 
Russian Federation and $27 by Thailand.2
•  Bangladesh and Cambodia are traditional 
exporters of garments, as are emerging 
exporters, such as Myanmar and Nepal. 
The indicators show that the market for 
”other outer garments of textile fabrics, 
not knitted, or crocheted” has been 
growing in the region at an average 
value of $167 million per year – by $58 
million per year in the Russian Federation 
and by $51 million in the Republic of 
Korea. Also of interest to Cambodia is 
the data on footwear market, which has 
been expanding across the region,  by 
$392 million per year, most rapidly in the 
Source: ESCAP based on data from United Nations Statistics Division, 
Russian Federation, $200 million, China, 
Commodity Trade Statistics database (COMTRADE).
$58 million, the Republic of Korea, $51 
million and Turkey, $38 million.
25

 
• The Lao People’s Democratic Republic 
covered by bound tariffs or binding coverage 
should be able to benefit from the 
in Asia and the Pacific is 88 per cent, but the 
expansion in the demand for copper 
coverage could be as low as 15 per cent. 
for which the market is growing by 
The lower the binding coverage, the more 
$1.8 billion per year, mostly in China. 
flexibility a country has in introducing higher 
Similarly, the market for “copper and 
levels of applied import tariffs on products 
copper alloys, worked” is growing across 
that do not have tariff bindings. While this 
the region, by about $534 million per 
increases “policy space” of individual countries, 
year. The main expanding markets are: 
it also makes the trading environment less 
China at $273 million, Thailand at $57 
stable and more unpredictable.
million and Turkey at $45 million.
Notably, average tariffs are based on so-called 
Barriers to trade
dutiable imports excluding all zero-rate MFN 
tariffs. However, the share of zero-rate MFN 
Even though intraregional trade has been 
bound or applied tariffs is significant, more so 
increasing, it continues to face a number of 
in high-income than in low-income countries 
barriers. Traditionally, countries relied on 
in a region. For most countries, non-agriculture 
tariffs to protect domestic producers against 
tariffs lines have a larger proportion of bound 
foreign competition, but increasingly the 
zero duty than agriculture lines. As many as 
instruments of choice are various non-tariff 
thirteen economies in the region apply zero 
and behind-the-border barriers. 
duty to more than 50 per cent of their non-
agriculture tariff lines, including Singapore, 
Tariffs
Hong Kong, China and Macao, China where the 
duty-free share is 100 per cent. For agriculture 
There is no doubt that six decades of 
multilateral trade negotiations have led to 
products, 10 countries apply zero duty to more 
a significant reduction of so-called most 
than 50 per cent of their agriculture tariff lines. 
favoured nation (MFN) tariffs, to more 
As in the case of positive tariff rates, countries 
clarity about types of tariffs, for example 
tend to apply more zero tariffs than what they 
ad valorem versus specific tariffs, and to a 
are willing to bind at zero-rates, meaning that 
higher predictability on levels of duties to be 
they wish to preserve the flexibility to invoke 
charged. Historically, applied import tariffs in 
duty on most of the tariff lines for which they 
most of the Asia-Pacific economies have never 
currently impose no duties.
been very high, on average, as many of these 
economies needed to import raw materials 
Non-tariff measures
and intermediate products to sustain their 
There is much less data on non-tariff measures 
export dynamism. In 2009, the average 
applied MFN rate in the region was 8 per cent, 
(NTMs), which prevents comparisons across 
with only Maldives having an average MFN 
countries or over time. The WTO provides 
applied rate of about 20 per cent and most 
regularly updated information on technical 
other economies having average rates of less 
barriers to trade (TBT) through a publicly 
than 10 per cent.
accessible database (TBT_IMS). In addition 
to TBT there are many other NTMs, which 
While the average level of applied MFN tariff 
should be properly monitored. However, 
rates have been reduced significantly, many 
while there have been many attempts to 
countries in the region still have higher 
organize comprehensive inventories of NTMs, 
average bound rates. The unweighted average 
none of these initiatives have yet to produce 
of bound tariffs for the selected Asia-Pacific 
databases equivalent to tariff schedules.
economies is 28 per cent, but the variation 
Technical barriers to trade are, in principle, 
of average bound tariffs around this mean is 
non-discriminatory and apply to all trading 
very large, ranging from less than 5 per cent 
partners. The other barriers to trade arise 
to more than 100 per cent. Furthermore, many 
from time-consuming customs procedures, 
countries still do not bind 100 per cent of 
conformity assessments, non-transparency, 
their tariffs. On average, the extent of imports 
arbitrariness, poor facilitation of trade at 
26


CHAPTER  TWO
Towards a broader integrated market
the borders, poor physical connectivity and 
Pacific developing economies decreased 
freight and associated costs, among others.3
on average by more than 18 per cent. The 
greatest progress has been in South-East 
Accounting for the costs of merchandise 
Asia. On the other hand, procedures in South 
trade
and South-West Asia still take 50 per cent 
more time to complete than in South-East 
According to the ESCAP Trade Cost Database, 
Asia. No significant progress was made in 
nowadays tariffs typically account for no 
the Pacific. Overall, it still takes three times 
more than 10 per cent of overall trade costs.4  
longer to complete trade procedures in the 
But while tariffs have been falling, both as 
Asia-Pacific developing economies than in 
nominal and effective rates, the costs of 
Australia, Japan and New Zealand, indicating 
non-tariff and behind-the-border measures 
considerable room for improvement.
remain very high. For example, intraregional 
trade is inhibited by documentary and other 
Some of the costs are inherent to the location, 
import and export procedures which account 
culture or history of the trading partners and 
for up to 15 per cent of the value of traded 
may be difficult to address through policy, at 
goods.5 These form part of what are measured 
least within a reasonable time frame. These 
as comprehensive trade costs.6 
costs are sometimes called ”natural” trade 
costs. However, other costs – such as tariff rates, 
Between 2005 and 2011, the time taken to 
the availability of logistics infrastructure and 
complete all trade procedures involved in 
services, a favourable exchange rate, a con-
moving goods from factory to ship at the 
ducive business environment and transparent 
nearest seaport – or vice versa – in the Asia-
and streamlined border procedures – are open 
to policy change.
FIGURE TITLE
II.4. 
Policy-related factors in trade costs
Source: Duval and Uthoktham (2011).
a   Illustrative based on casual observation of the data only. Natural trade costs for landlocked countries may be outside the range shown for 
natural trade costs.
27

Research undertaken by ESCAP suggests 
even when they are also relatively close 
that tariff trade costs in Asia and the Pacific 
geographically. Moreover, the costs of trade 
generally account for up to 10 per cent of 
between the Asia-Pacific subregions tend to 
bilateral comprehensive trade costs, while 
be substantially higher than those between 
other policy-related trade costs, such those of a  
them and the traditional markets of the West. 
non-tariff nature, account for 60 to 90 per cent. 
Those between the ASEAN and SAARC, for 
Natural trade costs vary widely depending on 
example, are on average nearly double the 
the partner countries, but account on average 
costs of trade between ASEAN and the United 
for more than 20 per cent of trade costs. As 
States of America. Similarly, the costs of trade 
indicated in figure II.4, progress to bring down 
between North and Central Asia and South 
trade costs will be particularly important in 
Asia are about twice those between North 
maritime services and in information and 
and Central Asia and the European Union.7 
communications technology (ICT).
Factors that explain these significantly higher 
costs are explored below and in chapter three 
It should be noted, too, that the full costs lay 
of this study. 
not so much in the direct costs of completing 
the procedures, but in a potential reluctance 
Apart from Singapore and Hong Kong, China, 
to engage in trade if the likely overall costs are 
the top-ranked economies in the ESCAP Trade 
uncertain.
Cost Database – the ones with the lowest costs 
– are Malaysia, the United States, China, the 
All subregions in Asia and the Pacific have 
Republic of Korea and Thailand, with Japan 
made progress in reducing non-tariff trade 
and Germany following closely.8 However, the 
costs between 2001-2003 and 2007-2009, 
trade cost performance of a given country 
with trade costs between East Asia and 
varies significantly depending on trading 
North and Central Asia experiencing the 
partners, as well as on the type of goods. 
Compared with manufactured goods, the 
largest reduction (table II.4). Because its 
barriers are greater for agricultural products 
geographic proximity and similarities in 
which are typically governed by extensive 
languages and culture, the costs of trade are 
regulations for food safety or food security.9  
expected to be lower between countries in 
Nevertheless, the costs vary considerably from 
the same subregion. However, the costs of 
country to country suggesting significant 
trade between subregions are quite high, 
scope for reduction (figure II.5).
TABLE TITLE
II.4. 
Non-tariff intraregional and extraregional trade costs in Asia and the Pacific, 2007-2009
North and 
Australia-New 
Region
ASEAN-4
East Asia-3
Central Asia-6
SAARC-4
Zealand
EU-3
79
ASEAN-4
(-10)
73
47
East Asia-3
(-6)
(-21)
North and 
291
187
149
Central Asia-6
(-14)
(-33)
(-21)
134
119
270
113
SAARC-4
(-0)
(-3)
(-22)
(-1)
Australia-New 
90
78
270
130
45
Zealand
(-12)
(-16)
(-22)
(-3)
(-24)
97
70
149
101
89
32
EU-3
(-5)
(-19)
(-26)
(-3)
(-17)
(-33)
77
53
165
99
82
51
United States
(-0)
(-14)
(-17)
(-1)
(-11)
(-18)
Source: ESCAP Trade Cost database (version 2).
Notes: Trade costs may be interpreted as tariff equivalents. Percentage changes in trade costs between 2001/2003 and 2007/2009 are in parentheses. 
ASEAN-4: Indonesia, Malaysia, the Philippines and Thailand; East-Asia-3: China, Japan and Republic of Korea; North and Central Asia-6: Armenia, 
Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan and Russian Federation; SAARC-4: Bangladesh, India, Pakistan and Sri Lanka; EU-3: France, Germany 
and the United Kingdom.
28


CHAPTER  TWO
Towards a broader integrated market
FIGURE TITLE
II.5. 
Agricultural and manufacturing non-tariff comprehensive trade costs between selected economies and Japan
Source:  ESCAP Trade Cost database (version 2).
Expanding trade in commercial 
This decline suggests that the Asia-Pacific 
services
region is enhancing its capabilities to produce 
and export commercial services.
Exports of commercial services are becoming 
increasingly important for Asia and the 
In the period 2000-2010, the share of travel 
Pacific. Between 2000 and 2010, the region 
services exports in global services exports 
increased its contribution to world services 
dropped from one third to one quarter of 
exports from 22 to 29 per cent. Although 
global exports, the share of transportation 
the latter figure is smaller than the region’s 
services fell by 1.9 percentage points, and the 
contribution to world merchandise exports, 
share of “other commercial services” increased 
38 per cent in 2010, the value of services 
eight percentage points, from about 45 per 
exports has been growing faster than that of 
cent in 2000 to just over 53 per cent in 2010. 
merchandise exports, especially in the last few 
During the same period, Asia and the Pacific 
years (figure II.6). In 2011, the top exporters 
increased its share of in global exports in 
of services from the region were China ($182 
these three categories of services (table 
billion), India ($148 billion), Japan ($142 
II.7). The region’s largest percentage point 
billion), Singapore ($125 billion), Hong Kong, 
increase was recorded in exports of travel 
China ($120 billion) and the Republic of Korea 
services, which reached $260 billion in 2010. 
($83 billion).10 The combined service exports 
The region’s share of transportation services 
of these six economies represented 63 per 
exports increased by 4.2 percentage points to 
cent of the region’s total during that year. The 
$245 billion in 2010, while the largest increase 
region’s imports of commercial services have 
in terms of value of exports was recorded in 
been growing somewhat slower than exports 
“other commercial services”, which reached 
since 2000. Consequently, the region’s trade 
$520 billion in 2010.
deficit in commercial services, measured as a 
percentage of its exports, has dropped from 
Data on bilateral trade in services among Asia-
15.4 per cent in 2000 to 2.8 per cent in 2011. 
Pacific economies are very limited. Only six 
economies, namely Australia, Japan, Republic 
29


FIGURE TITLE
II.6. 
Exports of commercial services and merchandise, Asia-Pacific, 2000-2010
Source:  ESCAP based on WTO and UNCTAD WTO International Trade Statistics database (accessed 12 April 2012).
of Korea, the Russian Federation, Singapore 
According to the United Nations World 
and Hong Kong, China, report exports and 
Tourism Organization (UNWTO), Asia and 
imports of commercial services with a selected 
the Pacific, currently ranked second among 
number of trading partners. Table II.5 shows 
the world’s regions in terms of international 
that in 2008, these six economies export, on 
tourist receipts, recorded a record number 
average, 34.8 per cent of their commercial 
of tourist arrivals in 2011 of 216 million or a 6 
services to trading partners within the region. 
per cent increase from the year before.12 The 
That year, Australia; Hong Kong, China; and 
dynamism of the travel industry in the region 
the Republic of Korea sent more than 40 per 
is partly the result of the increasing purchasing 
cent of their commercial services exports to 
power of its emerging middle class, which can 
other countries in the region. On the other 
increasingly afford the expense of travelling 
end, the Russian Federation sent only 5 per 
to other countries for tourism. 
cent of its commercial services exports to the 
region.11  Data on imports are qualitatively 
Table II.6 shows selected subregions and 
similar to those on exports, although the 
countries of origin for the 10 largest tourism 
average value of imports of the six reporting 
markets in Asia and the Pacific.13 Overall, 
economies originated in the region is lower, at 
almost two thirds of the tourism arrivals to 
28.7 per cent.
these countries originate from within the 
region, and more than 50 per cent originate 
Tourism services
from South-East Asia and East and North-East 
As mentioned above, travel is the type of 
Asia. Moreover, in seven of the ten countries, 
commercial service that expanded the fastest 
arrivals originating in the region represent 
in Asia and the Pacific over the last decade. It is 
70 per cent or more of the total arrivals. It 
a major industry with the potential to generate 
is expected that as the region continues to 
millions of jobs and support economic growth. 
prosper, intraregional tourism will increase at 
30

CHAPTER  TWO
Towards a broader integrated market
FIGURE TITLE
II.7. 
Changes in the share of commercial services exports, Asia and the Pacific and the world, 2000-2010
12
Other commercial services 
9
$523
orts, d 2010 6
 exp  2000 anlobaln g 3weenet

ory i
eg ge ban 0

ce cat
vi oints ch

f ser e p
Transportation $245
e o tag -3
Shar cenper
-6
Travel $260
-9
0
1
2
3
4
5
6
7
8
9
10
Share of Asia and the Pacific in global exports, percentage points change between 2000 and 2010
Source:  ESCAP based on ESCAP and WTO, WTO International Trade Statistics database (accessed 23 March 2012).
TABLE TITLE
II.5. 
Intraregional trade in commercial services, selected exporters and importers, 2008
(Percentage of total exports)
Reporter
Hong Kong, 
Republic of 
Russian 
Partner
Australia
China
Japan
Korea
Federation
Singapore
Average
Australia
2.7
1.5
0.8
0.1
4.2
1.9
Hong Kong, China
3.0
-0.7
4.7
0.3
4.1
1.7
Japan
4.5
6.4
10.5
1.0
6.8
4.7
Republic of Korea
3.4
2.7
3.3
1.2
3.2
2.4
Russian Federation
0.2
0.6
0.4
1.6
..
0.5
Singapore
7.3
2.8
9.4
4.2
0.2
4.5
China
8.8
24.4
6.1
14.6
1.7
5.2
10.4
India
5.5
1.0
1.1
1.3
0.3
2.9
1.8
Indonesia
1.9
0.6
1.4
1.1
0.0
3.1
1.4
Malaysia
2.8
1.3
0.0
1.0
0.0
3.2
1.2
New Zealand
6.4
0.3
0.3
0.1
0.0
0.7
0.8
Philippines
0.6
0.8
0.9
1.3
0.0
0.9
0.8
Thailand
1.8
0.9
3.4
1.5
0.1
2.1
1.9
Viet Nam
1.1
0.2
..
1.9
0.4
0.9
0.7
Total
47.4
44.7
27.1
44.7
5.5
37.3
34.8
Source: ESCAP based on United Nations Services Trade Statistics (accessed November 2011).
31

a greater pace, and thus could make a large 
Agreement on Trade in Services (GATS), 
contribution to supporting growth across the 
as Mode 2 of supply or consumption of a 
region.
service abroad. Although this mode currently 
represents the largest share of the global 
Education services
market of education services, there are other 
forms of supply that are gaining relevance 
Exports of education services, especially at 
especially in the developing countries of Asia 
the tertiary level, have increasingly become 
and the Pacific. For example, improvements 
an important source of foreign exchange 
in access to modern ICT have opened large 
earnings for many Asia-Pacific economies. 
potential for cross-border supply (Mode 
According to data from the United Nations 
1) through distance education, e-learning 
Educational, Scientific and Cultural Orga-
and the operation of virtual universities. In 
nization (UNESCO) Institute for Statistics, the 
addition, foreign investment, franchising, 
three largest education services exporters of 
and partnerships between foreign and local 
the region are Australia, Japan, and the Russian 
institutions have been bringing a rapid 
Federation. As it is clear from figure II.8, the 
expansion in Mode 3, a commercial presence 
large majority of international students in the 
of institutional education providers in a 
Asia-Pacific economies come from other Asia-
foreign country. An increase in the presence 
Pacific economies.
of foreign providers of education services 
through Mode 3 is often perceived as an 
However, statistics on the number of 
effective way to attract foreign students, 
international students only partially capture 
as well as to reduce the outflow of foreign 
trade in education services. Education 
exchange by keeping domestic students in 
services provided to international students 
the country.
are classified, according to the General 
TABLE TITLE
II.6. 
Tourism arrivals, selected Asia-Pacific countries, 2010
(In thousands)
Subregion or country of origin 
East and 
South and 
Country of 
North-East 
South-East 
Australia and 
Russian 
South-West 
destination
Asia
Asia
New Zealand
Federation
Asia
Subtotal
Total
China
13 859
5 746
777
2 370
871
23 624
31 267
(44.3)
(18.4)
(2.5)
(7.6)
(2.8)
(75.6)
(100)
Turkey 
427
120
156
3 107
1 987
5 797
28 632
(1.5)
(0.4)
(0.5)
(10.9)
(6.9)
(20.2)
(100)
Malaysia 
2 021
18 937
647
32
997
22 635
24 577
(8.2)
(77.1)
(2.6)
(0.1)
(4.1)
(92.1)
(100)
Thailand
3 290
3 741
642
600
894
9 167
13 395
(24.6)
(27.9)
(4.8)
(4.5)
(6.7)
(68.4)
(100)
Singapore 
2 664
4 822
 976
..
1 084
9 546
11 642
(22.9)
(41.4)
(8.4)
..
(9.3)
(82.0)
(100)
Japan 
5 661
722
258
51
105
6 797
8 611
(65.7)
(8.4)
(3.0)
(0.6)
(1.2)
(78.9)
(100)
Republic of 
5 038
861
123
137
114
6 272
7 818
Korea
(64.4)
(11.0)
(1.6)
(1.8)
(1.5)
(80.2)
(100)
Indonesia 
1 455
3 052
804
..
158
5 469
7 003
(20.8)
(43.6)
(11.5)
..
(2.3)
(78.1)
(100)
India 
412
439
207
122
1 047
2 227
5 776
(7.1)
(7.6)
(3.6)
(2.1)
(18.1)
(38.6)
(100)
Australia
1 163
790
1 110
12
162
3 238
5 584
(20.8)
(14.1)
(19.9)
(0.2)
(2.9)
(58.0)
(100)
Total
35 990
39 231
5 701
6 432
7 419
94 772
144 305
(24.9)
(27.2)
(4.0)
(4.5)
(5.1)
(65.7)
(100)
Source: ESCAP based on UNWTO (accessed November 2011).
Notes: Shares of total arrivals in parentheses. China’s arrival exclude those from Hong Kong, China and Macao, China. Data for Australia is for 2009. 
Methods of data collection are not standardized across countries.  
32



CHAPTER  TWO
Towards a broader integrated market
FIGURE TITLE
II.8. 
Number of international students in selected Asia-Pacific economies, 2009
(in thousands)
Source:  ESCAP calculations based on UNESCO, Institute for Statistics database. Available from  http://stats.uis.unesco.org.
Note: Figures for India are for 2006 and those for the Philippines are for 2008.
Movement of people
well as for residents of countries of origin and 
Movement of people across borders is an 
countries of destination, but the migration 
important mode of trade in services. Migration 
process must be well-managed. In the light 
flows between countries in the region could be 
of the significant amount of migration 
very effective in tackling structural demand-
occurring within Asia and the Pacific, regional 
supply imbalances between countries of the 
coordination of international migration 
region, contributing economic growth and 
policies could facilitate better skills matching 
a reduction in region-wide disparities in the 
to address labour market needs in countries of 
distribution of labour income. For instance, 
origin and destination.  This includes creating 
changes in technology and the mix of goods 
legal channels for migration and the sending 
and products produced in a particular eco-
of remittances by both skilled and low-skilled 
nomy could lead to shortages in specific seg-
labour migrants, resulting in more balanced 
ments of the labour market and to excess 
opportunities and benefits for the region.
supply in others. While such complex changes 
Migrants in Asia and the Pacific
could, in principle, be tackled through 
national educational and training policies, 
Several countries of the region have attracted 
both the implementation of such policies and 
significant numbers of migrants. In 2010, the 
the time it takes to train skilled workers make 
region’s largest foreign-born population – 
migration a more effective channel to tackle 
more than 12 million – lived in the Russian 
imbalances in specific segments of the labour 
Federation, followed by India, Australia, 
market in the short to medium run. 
Pakistan and Kazakhstan. In most cases, 
the foreign-born population comes from 
In sum, labour migration can be mutually 
neighbouring countries or other countries 
beneficial for employers and migrants, as 
within the subregion. For example, Australia 
33

and New Zealand are well connected to 
the region, remittances are the largest sources 
each other, facilitated by the reciprocal 
of foreign exchange. In 2011 of the top ten 
rights agreement under the Trans-Tasman 
recipients of remittances worldwide, six were 
Travel Arrangement, which came into effect 
in  the Asia-Pacific region, led by India ($58 
in 1973. This informal agreement allows for 
billion), China ($57 billion), the Philippines 
free movement of labour migrants between 
($23 billion), Bangladesh and Pakistan ($12 
the two countries. Additionally, several 
billion each) and Viet Nam ($8 billion).16 
Pacific island countries have large diasporas 
For some countries, such as Tonga, Samoa 
in Australia and New Zealand. For example, 
and Nepal, remittances represent a high 
in 2005, the population of Samoa stood at 
proportion – of 20 per cent or more – of the 
180,000, with 15,240 Samoans residing in 
GDP.17 Given these benefits, it is not surprising 
Australia and 50,649 Samoans living in New 
that the governments of many countries, 
Zealand.
such as Bangladesh, India, Indonesia, Nepal, 
Pakistan, the Philippines, Sri Lanka, Thailand 
An increasing number of migrants travel for 
and Viet Nam, are actively involved in the 
study, particularly at the tertiary level. The 
deployment of migrant workers.
majority of Asian students studying abroad 
still favour Europe and North America,14 but 
In addition, the share of remittances origi-
East Asian destinations, such as Japan and 
nating in the region itself is very significant. 
Republic of Korea, and Australia are becoming 
According to estimates produced by the 
popular (figure II.8); and about 90 per cent of 
World Bank, it ranges between 26 and 43 
these countries’ foreign students are from 
per cent, depending on the methodology. 
Asia, especially China. In 2008, about 18 per 
According to estimates based on migrant 
cent of Chinese studying abroad studied in 
stocks and incomes in both the sending and 
Japan and about 8 per cent in the Republic 
the destination economies, shown in table II.7, 
of Korea. Another popular destination for 
some 34 per cent of the remittances received 
students is the Russian Federation, largely 
by the region in 2010 originated in the region. 
from Kazakhstan and other Central Asian 
The Asia-Pacific subregions with the highest 
countries.
shares of remittances coming from the region 
are North and Central Asia (57 per cent), East 
A unique feature in the Asia-Pacific region 
and North-East Asia (54 per cent) and the 
is that it hosts both locations of origin and 
Pacific (39 per cent). 
of destination of labour migrants. Some 
economies, such as Japan, Malaysia, the 
Traditional sources of remittances income 
Republic of Korea, Thailand, Hong Kong, China 
outside the region include Canada and the 
and Taiwan Province of China have recently 
United States, which provide 42 per cent of 
become destinations for labour migrants. 
the remittances received by South-East Asia 
Those  from South-East Asia migrate mainly 
and 31 per cent of those received by East 
to the more affluent economies, notably 
and North-East Asia; Europe, which provides 
Brunei Darussalam, Malaysia, Thailand, and 
36 per cent of the remittances received by 
Singapore as well as to East Asia, particularly 
the Pacific; and the Gulf Cooperation Council 
the Republic of Korea; Hong Kong, China; 
countries,18 which provide 42 per cent of the 
Macao, China; and Taiwan Province of China. 
remittances received by South and South- 
Meanwhile, labour migrants from Central 
West Asia. However, as growth in Asia and 
Asia tend to migrate to Kazakhstan and the 
the Pacific continues to outpace that of these 
Russian Federation.15
traditional sources, it is expected that the 
region will be able to offer more and more 
Labour migration and remittances
opportunities for migrants. Thus, the share 
of remittances originating from the region is 
Labour migration also provides a source of 
likely to increase in the future.
income to households of the migrants left 
behind in the countries of origin. Moreover, for 
a number of countries of origin of migration in 
34

CHAPTER  TWO
Towards a broader integrated market
Irregular migration
Irregular migration, which is often encou-
raged by restrictions on labour movements, 
Although it is difficult to estimate the mag-
incurs high economic and social costs for 
nitude of irregular migration flows, some data 
both countries of origin and destination. For 
emerge when countries encourage migrants 
instance, high recruitment costs for labour 
to register. The main destinations for irregular 
migrants reduces the positive impacts of 
migrants are believed to be Thailand, Malaysia 
remittances because a significant proportion 
and India. The Ministry of Interior of Thailand 
of the migrants’ income should be used 
estimated that in 2010, there were around 1.4 
to repay loans taken to cover the cost of 
million unregistered migrants in the country, 
recruitment, such as transport and securing 
with perhaps 80 per cent of them from 
a work visa. As such, the minimization of 
Myanmar and the remainder from Cambodia 
recruitment costs, processes and delays 
and the Lao People’s Democratic Republic.19 
in regular migration are key to improving 
In the Russian Federation, about half of its 
international migration management at the 
migrants are estimated to be irregular, the 
regional level.
majority from Central Asia and other countries 
of the Commonwealth of Independent States 
Cooperation in labour migration
(CIS). Kazakhstan is believed to have between 
500,000 and 1 million irregular migrants, 
Large irregular labour migration flows  between 
mostly from Kyrgyzstan, Tajikistan and Uzbe-
countries reflect the absence of an adequate 
kistan.20
legal framework to enable migration through 
regular channels. 
TABLE TITLE
II.7. 
Bilateral remittances received by the Asia-Pacific subregions, 2010
(Millions of US dollars)
Receiving
East and 
South and 
North-East 
North and 
South-East 
South-West 
Sending
Asia
Central Asia
Pacific
Asia
Asia
Asia-Pacific
East and North-East 
20 935
9
139
1 577
426
23 086
Asia
(38)
(0)
(3)
(5)
(1)
(12)
10
6 224
0
0
25
6 259
North and Central Asia
(0)
(57)
(0)
(0)
(0)
(3)
Pacific
3 008
20
1 669
1 734
2 332
8 763
(5)
(0)
(32)
(5)
(3)
(5)
6 099
0
159
6 471
2 190
14 919
South East-Asia
(11)
(0)
(3)
(20)
(3)
(8)
South and South-West 
162
45
63
21
10 148
10 439
Asia
(0)
(0)
(1)
(0)
(12)
(6)
Asia-Pacific
30 214
6 298
2 030
9 803
15 121
63 466
(54)
(57)
(39)
(31)
(18)
(34)
Canada and United 
18 551
538
1 114
13 410
19 350
52 963
States
(33)
(5)
(21)
(42)
(23)
(28)
5 735
639
1 869
3 624
12 338
24 205
EU 15
(10)
(6)
(36)
(11)
(15)
(13)
Gulf Cooperation 
0
0
0
4 424
35 029
39 453
Council
(0)
(0)
(0)
(14)
(42)
(21)
1 167
3 515
250
565
1 249
6 746
Rest of the World
(2)
(32)
(5)
(2)
(2)
(4)
55 667
10 990
5 263
31 826
83 087
186 833
World
(100)
(100)
(100)
(100)
(100)
(100)
Source: ESCAP based on data from World Bank, “Bilateral Migration and Remittances 2010. Available from http://econ.worldbank.org/WBSITE/
EXTERNAL/EXTDEC/EXTDECPROSPECTS/0,,contentMDK:22803131~pagePK:64165401~piPK:64165026~theSitePK:476883,00.html (accessed 20 
April 2012).
Notes:  Numbers in parentheses are percentages of total remitances received by each subregion and by the Asia-Pacific region (last column). World 
Bank bilateral remittance estimates based on migrant stocks, destination country incomes, and source country incomes. For more information, see 
Ratha and Shaw, 2007, “South-South Migration and Remittances”,  Development Prospects Group, World Bank. Available from www.worldbank.org/
prospects/migrationandremittances. 
35

In order to regularize migration flows, and 
the right to work. In this respect, several 
maximize the benefits of labour migration 
subregions such as Central Asia or ASEAN 
for source and destination countries, a 
are relatively well integrated. South Asian 
number of countries have concluded bi-
countries, on the other hand, are relatively 
lateral agreements, usually in the form of 
poorly integrated among themselves and 
memoranda of understanding, which are 
with the rest of Asia.
more effective for the management of labour 
migration flows than national actions taken 
North and Central Asia – A mutual interest 
unilaterally by sending or receiving countries. 
among the CIS countries has led to an 
They vary significantly in content, and can 
agreement on cooperation in labour migration 
cover recruitment, conditions of employment 
and on social guarantees for migrant workers 
and measures to protect migrants. Key 
(1994), the agreement between the CIS 
destination locations in Asia, such as Malaysia, 
countries on cooperation in preventing 
the Republic of Korea, Thailand, Hong Kong, 
irregular migration (1998) and the EurAsEc 
China, Macao, China and Taiwan Province 
Agreement in visa-free trips (2005). There 
of China, have concluded memoranda of 
are also a number of bilateral agreements on 
understanding with selected countries of 
labour migration, such as between the Russian 
origin in South-East and South Asia.
Federation and Kyrgyzstan and Tajikistan.21 
The Russian Federation allows visa-free entry 
The most extensive arrangements are be-
to migrant workers, while Kazakhstan allows 
tween the Republic of Korea and 15 Asian 
migrants from CIS countries 90 days to search 
countries of origin, namely Bangladesh, 
for work.22
Cambodia, China, Indonesia, Kyrgyzstan, 
Mongolia, Myanmar, Nepal, Pakistan, the 
ASEAN – ASEAN foresees a free flow of skilled 
Philippines, Sri Lanka, Thailand, Timor-Leste, 
labour by 2020 and is working to facilitate 
Uzbekistan and Viet Nam, based on the 
the issue of visas and employment passes for 
Employment Permit System (EPS). Initiated 
ASEAN professionals and skilled labour. As a 
in 2004, the programme establishes quotas 
first step, the Association has signed mutual 
of foreign workers per industry and also 
recognition agreements for nurses, dental 
oversees pre-departure training of the foreign 
and medical practitioners, engineering and 
workers, including language training. Under 
architectural services, surveying professionals 
the scheme, the maximum stay is three years, 
and accountancy services. However, these 
after which migrants have to return and 
agreements do not extend to low-skilled 
remain in their country of origin for one year 
workers. In addition, there is the ASEAN 
before being eligible to re-apply. Moreover, 
Declaration on the Protection and Promotion 
the programme encourages voluntary return 
of the Rights of Migrant Workers. Signed in 
and encourages a network of returnees, 
January 2007, the Declaration acknowledges 
which again would strengthen the links with 
the “need to adopt appropriate and compre-
the Republic of Korea.
hensive migration policies on migrant wor-
kers” and “to address cases of abuse and 
Thailand has signed memoranda of under-
violence”.
standing with Cambodia, Lao People’s Democratic 
Republic and Myanmar on guidelines and 
Pacific – As a result of their historic ties to 
procedures for employment protection and 
Australia, New Zealand or the United States 
return of workers, but the majority of migrants 
of America, traditionally it has been easier 
still continue to migrate through irregular 
for migrants from several Polynesian and 
channels which are easier and cheaper. Thailand 
Micronesian economies to access those 
also has a memorandum of understanding with 
countries than for migrants from Melanesia.23 
Taiwan Province of China, but in this case for its 
Australia and New Zealand have recently 
own migrant workers.
started opening up to seasonal agricultural 
labour from several Pacific countries through 
Some subregions already have visa-free 
the Pacific Seasonal Worker Pilot Scheme 
regimes, though these do not always include 
(Australia) and the Recognized Seasonal 
36

CHAPTER  TWO
Towards a broader integrated market
Employer Scheme (New Zealand). Although 
based in the Asia-Pacific economies that tend 
the number of participants has not being 
to operate globally similar to transnational 
large, these schemes have had an impact at 
corporations (TNCs) originating in advanced 
the local level when workers return to their 
economies. A survey of the top 100 compa-
countries. Both seasonal workers schemes 
nies from fast growing emerging economies 
are a step towards connecting all the Pacific 
included 33 companies from China, 20 from 
island economies.
India, 6 from the Russian Federation, 4 from 
Thailand, 2 each from Indonesia and Turkey 
Migration is inherently a multilateral concern, 
and 1 from Malaysia.25 However, it has been 
and desired outcomes are most likely to be 
argued that compared with those from 
achieved if countries of origin and destination 
developed countries, TNCs from developing 
discuss labour migration issues and the best 
countries move abroad on the strength of 
way to resolve them.24 Regional cooperation, 
their frugal engineering or their ability to 
guided by international principles and norms, 
deliver value for money. As these companies 
offer the best conduit for improving migration 
operate in an environment with similar input 
governance in Asia and the Pacific.
and output prices, they tend to be more 
adept than their counterparts from advanced 
countries in introducing more appropriate 
Foreign direct investment
products and processes to other developing 
The rapid economic growth in the Asia-Pacific 
countries.26 These TNCs are gaining  a stronger 
region has been accompanied by increasing 
foothold in climate-smart technologies. For 
flows of FDI. Between 1996 and 2000 and 2006 
example, Chinese companies, such as Suntech 
and 2010, FDI inflows to Asia and the Pacific 
and Sunergy, are looking to either become or 
almost tripled and the region now accounts 
reinforce their leading position in solar energy, 
for about one-quarter of global inflows, but 
while the Indian company, Suzlon, is one of 
FDI outflows from the region have expanded 
the world’s top-five wind energy companies.27 
even more impressively with the emergence 
Many of these companies have developed 
of China, India, Malaysia, Singapore and Hong 
globally recognizable brands, including Acer, 
Kong, China, joining conventional sources of 
Lenovo, Haier, and Tata.
FDI, such as Australia, Japan and the Republic 
of Korea. Over the same period, FDI outflows 
As a result of the rise of new sources of FDI with-
more than quadrupled and accounted for   21 
in the Asia-Pacific region, an increasing share 
per cent of global  outflows (table II.8).
of FDI flows now takes place intraregionally, 
reflecting the increasing participation by the 
The emergence of new sources in the Asia-
region’s developing economies in regional and 
Pacific region is actually a reflection of the 
global supply chains. Developing countries 
development  of large dynamic enterprises 
seeking opportunities often find it better to 
invest in other developing countries. This is 
TABLE TITLE
II.8. 
Average FDI flows to and from Asia-Pacific countries and their global shares, 1996-2000 and 2006-2010
Average 1996-2000
Average 2006-2010
In billions of US 
Percentage of 
In billions of US 
Percentage  of 
dollars
world flows
dollars
world flows
FDI inflows
Developing Asia-Pacific countries
115
14
340
22
Developed Asia-Pacific countries
15
2
49
3
FDI outflows
Developing Asia-Pacific countries
53
7
233
15
Developed Asia-Pacific countries
30
4
101
6
Source: ESCAP calculations based on UNCTAD (2011a).
Note: Developed Asia-Pacific countries include Australia, Japan and New Zealand.
37


not only because they offer comparable or 
FDI inflows are from ASEAN countries though 
lower wages or prices but as other developing 
China is the largest single contributing 
countries are at corresponding stages of 
economy.  Much of the investment has gone 
development, they can absorb similar types 
into the garment sector. In the Lao People’s 
and levels of technology and knowledge.28 
Democratic Republic, China and Viet Nam are 
However, the situation varies from one 
the largest contributors of FDI,  which is mainly 
subregion to another.
directed to hydroelectricity and mining. For 
Viet Nam during the period 1990-2010, the 
South-East Asia – Between the periods 1998-
largest investors were from Japan, Malaysia, 
2000 and 2008-2010, the average proportion 
the Republic of Korea, Singapore and Taiwan 
of FDI inflows to South-East Asia coming from 
Province of China.30 In Myanmar, Chinese 
the European Union and the United States fell 
investors contributed the largest amount of 
from 55 to 31 per cent of total inflows to the 
FDI, pledging to invest $20 billion during the 
region while those from ASEAN+6 countries 
2010-2011 fiscal year, with the main recipients 
(+Australia, China, India, Japan, New Zealand 
being the electricity, oil and gas and mining 
and the Republic of Korea) increased from 15 
sectors.31
to 41 per cent. Among the ASEAN+6 sources, 
Japan was the largest contributor at 10 per 
South Asia – For India, about 57 per cent of the 
cent, followed by China at 5.3 per cent, and 
Asia-Pacific FDI comes from South-East Asia32  
the Republic of Korea at 4.3 per cent.29 It is 
and 37 per cent from East and North-East Asia, 
also noticeable that an increasing proportion 
with far less from its South Asian neighbours.33 
of intra-subregional flows are going to the 
As observed earlier, Indian companies are also 
”CLMV” countries – Cambodia, Lao People’s 
becoming active players in a number of Asia-
Democratic Republic,  Myanmar and Viet 
Pacific economies including ASEAN countries, 
Nam. In Cambodia, for example, 45 per cent of 
such as Indonesia, Malaysia, Singapore and 
FIGURE TITLE
II.9. 
Top recipients of FDI inflows in Asia and the Pacific in 2010 and FDI outflows from these countries 
(Billions of US dollars)
Source: ESCAP based on UNCTAD (2011a) .
38

CHAPTER  TWO
Towards a broader integrated market
Thailand and select South Asian economies, 
in a handful of countries, such as Kazakhstan 
such as Nepal and Sri Lanka.  For Pakistan, the 
and Turkmenistan, which have vast energy 
most significant suppliers of greenfield FDI 
and natural resources.
are from Malaysia, Singapore and Thailand.34 
In Bangladesh, during 2009-2010, the largest 
Pacific – In 2010 French Polynesia, Samoa 
contributors of FDI, in terms of proposed 
and Solomon Islands experienced the largest 
investments, were Saudi Arabia, Republic of 
growth in FDI inflows in the subregion. Inflows 
Korea and China.35 In that period Bangladesh 
to French Polynesia more than doubled to $26 
also originated small FDI outflows, 39 per 
million while inflows to Samoa and Solomon 
cent of which went to India.36 Sri Lanka has 
Islands almost doubled to $238 and $2 million, 
benefited from increased investment from 
respectively.41 The leading sectors for FDI 
India and as it recovers from its prolonged 
inflows in the subregion are tourism, fisheries 
conflict it is also expecting increasing inflows 
and mining.42 In addition, liberalization of the 
of FDI from other Asia-Pacific countries.
market in Samoa has spurred investment in 
telecommunications.43 Most FDI to the Pacific 
North-East Asia – The largest FDI destination 
island economies comes from Australia, New 
in Asia and the Pacific is by far China, with 
Zealand, Japan and, increasingly, China. In 
around two thirds of the inflows coming 
Papua New Guinea, Australian companies are 
from East and North-East Asia, the principal 
the most active in the mining and petroleum 
sources being Hong Kong, China, Japan 
sectors but China is also increasing its 
and the Republic of Korea. Overall, in 2010, 
investment there, including the $1-billion 
some 72 per cent of the FDI flows to China 
Ramu nickel mine.44 In Fiji, where Australia is 
were sourced in the Asia-Pacific region, up 
also the largest investor in the tourism industry 
from 62.3 per cent in 2000. In addition, FDI 
as well as in textiles, garments and footwear, 
outflows from China have continued to grow, 
FDI declined from a peak of $410 million to 
increasing by 20 per cent in 2010. This growth 
$56 million in 2009, although it recovered to 
is likely to continue due to the country’s high 
$200 million in 2010 and in 2011, a Chinese 
level of domestic savings and its increasing 
investor group acquired 6,000 acres of land 
need to secure the supply of resources and 
to establish tourist and other facilities.45 The 
access to new markets and technology.37 
Australian S-TCF scheme helped spur FDI to 
China is already a large investor in South-Asian 
Pacific island economies by facilitating duty-
countries and is also increasing its presence in 
free access for textiles, clothing and footwear 
Central Asia and the Pacific subregions. 
products manufactured in the Pacific Island 
Forum countries, but it expired in December 
Central Asia – Most FDI inflows target the 
2011. 
natural resources sector, oil and gas as well as 
minerals and other precious and base metals. 
Least developed countries – Flows to the 
Between 1993 and 2008, this sector witnessed 
region’s 14 least developed countries dipped 
a ninefold increase in inflows, two-thirds of 
in 2009 but grew by more than one-third 
which went to the energy sector.38 In 2010, 
in 2010 to $3.6 billion. Nevertheless, they 
however, the subregion’s overall FDI inflows 
account for only 1 per cent of the region’s 
fell by 28 per cent to about $14.8 billion.39 The 
FDI inflows.46 In 2010, more than two-thirds 
dominant investor is the Russian Federation, 
of the FDI in least developed countries in the 
which, in 2009, accounted for 68 per cent of 
region was placed in Bangladesh, Cambodia 
the subregional FDI inflows. Nevertheless, in 
and Myanmar, which have all experienced 
addition to traditional sources, such as Japan 
significant growth. Outflows of FDI from least 
and the Republic of Korea, a gradually larger 
developed countries remain low, at 0.01 per 
portion of FDI inflows has recently come from 
cent of total FDI outflows from the Asia-Pacific 
developing countries, such as China and the 
region. In 2010, FDI outflows from the least 
Islamic Republic of Iran, and notably, both 
developed countries as a whole fell by 20 per 
China and India have been pursuing joint 
cent to $42 million, of which two-thirds of 
ventures.40 However, South-South investment 
the amount originated from Bangladesh and 
links in this subregion have been concentrated 
Cambodia. Most FDI from Bangladesh goes 
39

to India, with some heading to Sri Lanka and 
by countries in the region are bilateral. 
Pakistan. FDI from Cambodia mostly goes to 
There are also 15 plurilateral RTAs, and 15 
China, Singapore and Thailand.47
RTAs between a country and a bloc. Box II-1 
provides an overview of the key RTAs in each 
of the five subregions of Asia and the Pacific. 
A fragmented region
The RTAs average eight members, a relatively 
The extent of tariff and behind-the-border 
small size for a regional bloc.51 Subregional 
barriers to trade suggests that there is 
trade agreements include the ASEAN Free 
still considerable scope for further trade 
Trade Area (AFTA) now being transformed 
liberalization in the region. However, 
into an ASEAN Trade in Goods Agreement 
currently, there is not much appetite for 
(ATIGA), the Bay of Bengal Initiative for Multi-
liberalizing unilaterally. Many countries are 
Sectoral Technical and Economic Cooperation 
willing to continue reforms but only if other 
(BIMSTEC) FTA, the Economic Cooperation 
countries reciprocally offer market access. This 
Organization Trade Agreement (ECOTA) and 
is best achieved through multilateral trade 
the South Asian Free Trade Area (SAFTA).
negotiations. However, since the conclusion 
of the seventh multilateral round of the 
Most RTAs whose members are only from 
WTO in 1995, there has been little progress 
the Asia-Pacific region aim to eliminate tariffs 
on this front. Countries impatient with the 
and other trade barriers. Trade agreements 
slow pace have turned, instead, to bilateral 
include rules of origin to avoid trade 
or at best small plurilateral preferential trade 
deflection to unintended partners. Some 
agreements.48
of them, especially the recent ones, extend 
their scope beyond trade in goods to cover 
This region has been responsible for around 
trade in services, investments and economic 
half of all RTAs. Asia-Pacific economies are 
cooperation to exploit the full potential of 
parties to more than 140 agreements and are 
regionalism. Liberalization of trade in goods is 
contemplating or negotiating many more. 
generally on a negative list basis, meaning all 
This activism signals a preference for deeper 
products are covered in an trade agreement 
integration among countries in the region than 
except those on an exclusion or negative list 
currently envisaged in the Doha development 
(except in the case of APTA, which was set on  
round of the WTO, as well as an attempt to 
a positive list basis). On the other hand, trade 
break multilateral deadlocks, mostly through 
in services and investments are liberalized 
bilateral negotiations.49 However, expanding 
generally on a progressive or positive list basis, 
bilateral deals has the great disadvantage of 
although some agreements have investment 
increasing regional fragmentation.50
liberalization on a negative list basis as well, 
for instance, the Japan-Singapore FTA.52 
More than three-quarters of all RTAs signed 
Some agreements, however, have provisions 
BOX II.1. Key RTAs in each of the five subregions of Asia and the Pacific
As discussed in other ESCAP studies,a  the Asia-Pacific region appears to be 
fragmented into several geographical subregions characterized by distinct 
political, cultural and historical features. In addition, the degree of intra-
subregional trade and economic integration vary substantially across subregions, 
though such variation is often unrelated to the number of RTAs signed among 
the economies of each subregion. For instance, East and North-East Asia has the 
largest intensity of intra-subregional trade in Asia and the Pacific (64 per cent in 
2010, see table II.2), which is close to that of Europe (69 per cent in 2010, see table 
II.1).  Yet, East and North-East Asia is the only subregion in Asia and the Pacific 
40

CHAPTER  TWO
Towards a broader integrated market
BOX II.1. Continued
without any bilateral or plurilateral agreement linking its major economies. In 
contrast, the other Asia-Pacific subregions have at least one RTA in force signed 
by most or all of its economies.
East and North-East Asia
As already mentioned, this subregion not only has the most intensive intra-subregional 
trade in the region but is also the largest regional market for exports from other Asia-
Pacific subregions (table II.2). However, the only agreements in force involving East and 
North-East are three bilateral trade agreements (BTAs): the Closer Economic Partnership 
Agreements (CEPA) signed in 2003 between China and Hong Kong, China and between 
China and Macao, China, and the Economic Cooperation Framework Agreement (ECFA) 
signed in 2010 between China and Taiwan Province of China. Although the three major 
economies of the subregon, China, Japan and Republic of Korea, are intensively involved 
in negotiating trade agreements with common partners such as ASEAN, the European 
Union, Australia, India, New Zealand and the United States, as of the time of writing, they 
have not been aggressively pursuing trade arrangements with each other. 
However, this could change quickly as an announcement of soon-to-start negotiation of 
a tripartite FTA is expected at a May 2012 trilateral summit. This news would follow an 
expected announcement that the parties have concluded the negotiation of a three-way 
investment treaty, which can be seen as  an important stepping stone towards the far 
more ambitious goal of establishing a free-trade area among these Asian trade giants.b 
In the past few years, these countries have been studying the possibility of creating a 
trilateral FTA in which the final joint study meeting on the feasibility of such an agreement 
was held in December 2011. A free-trade agreement between the three countries would 
be a major achievement, not only in bringing their economies closer together but also 
in providing additional drivers for a broader regional integration across the whole Asia-
Pacific region.
North and Central Asia
The primary trade agreement among countries in this subregion (plus three other 
former Soviet Union States) was signed at the end of 1994 as CIS. It took almost five years 
to notify it to WTO, and much longer to complete negotiations to create a free-trade 
zone among its members. The CIS Free Trade Agreement (CISFTA) was finally signed in 
2011. It should be pointed out that a number of members in CISFTA have strong trade 
and investment linkages with Western Europe and that they look more favourably upon 
expanding their trading and financial relations with the European Union. However, the 
role of the Russian Federation as the largest market of CISFTA economies is undeniable 
not only for trade in goods, but also, as mentioned above, as a major destination for 
temporary labour migration. 
CISFTA is not the only agreement among economies in the region. In the late 1990s, 
these economies established a customs union under the name of Eurasian Economic 
Community (EurAsEC) and in 2003, a subgroup of North and Central Asian economies 
signed ECOTA with several South-West Asian countries 
South and South-West Asia 
SAFTA was first signed among the seven South Asian countries which were members 
of SAARC. Afghanistan joined in 2010. SAFTA came into effect on 1 January 2006, with 
the aim to reduce tariffs for intraregional trade. Pakistan and India are to complete 
41

implementation by 2012, Sri Lanka by 2013 and Bangladesh, Bhutan, Maldives and 
Nepal by 2015. SAARC members have established cooperation in standards, customs 
procedures and more recently are developing modalities for liberalization in services 
trade. Regarding goods, significant progress has been made in reducing sensitive 
lists, which has enabled more meaningful merchandise liberalization. Expansion of 
SAFTA to cover new areas may eventually lead to a full-fledged South Asia Economic 
Union. This is complemented by bilateral agreements between India and Sri Lanka, 
Bhutan and Nepal. Another initiative is ECO, initially formed in 1985 by Turkey, Iran 
and Pakistan but later expanded to cover Afghanistan and six Central Asian countries 
– Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, Uzbekistan and Tajikistan. In 2003, 
members established the ECO Trade Agreement. Some South Asian countries have 
trade and economic partnership agreements with East and South-East Asian countries. 
India is a summit-level dialogue partner and has signed an FTA with ASEAN, which is 
complemented by bilateral FTAs/CEPAs with Singapore, Malaysia and Thailand. India 
has CEPAs with Japan and Republic of Korea and is a member of the East Asia Summit. 
Pakistan has FTAs with China and Malaysia and Sri Lanka.
South-East Asia 
This subregion has been at the forefront of regional integration efforts in Asia since 
the signing of AFTA in 1992 and complementary negotiations in other areas, such as 
services, investment, recognition of qualifications and standards, all of which have 
deepened this agreement. In 2010, all the commitments regarding goods trade 
were consolidated in ATIGA, which not only focuses on tariff liberalization and non-
tariff measures but includes matters related to simplification of rules of origin and its 
implementation. Under this agreement, various agencies and regulatory bodies dealing 
with merchandise imports, including customs, health and agricultural authorities, will 
cooperate in ensuring smoother customs operations. ASEAN member countries have 
also made significant progress in lowering intraregional tariffs through the Common 
Effective Preferential Tariff (CEPT) scheme for AFTA and have agreed to establish 
the ASEAN Economic Community by 2015. An impressive achievement of ASEAN’s 
contribution to the regional economic integration process is the creation of dialogue 
partnerships, which have helped to bring together the major economies of the region, 
namely  Australia, China,  Japan,  India, New Zealand and the Republic of Korea that 
have ASEAN+1 FTAs. 
Pacific 
PICTA, signed in 2008, covers trade in goods among 14 members of the Pacific Islands 
Forum and does not include Australia and New Zealand. As of 2008, it is being expanded 
to trade in services. Based on PACER, as the framework agreement to deepen trade 
and investment liberalisation in the broader Pacific on a step-by-step basis, Australia 
has started to promote the PACER-plus agreement which includes Australia and New 
Zealand.  Negotiations are still undergoing.
Sources:  APTIAD at www.unescap.org/tid/aptiad and Bilaterals.org at www.bilaterals.org.
a ESCAP, Asia-Pacific Trade and Investment Report 2011: Post-crisis Trade and Investment Opportunities  (Bangkok, 2011). 
b Based on text posted at www.bilaterals.org on 30 March 2012 and attributed to Yuka Hayashi in Tokyo, Min-Jeong Lee 
in Seoul and Aaron Back in Beijing.
 
42

CHAPTER  TWO
Towards a broader integrated market
for movement of natural persons, such in 
of efficiency-seeking industrial restructur-
the Japan-Philippines FTA, which covers the 
ing could have substantial welfare gains 
movement of medical caregivers to Japan 
for participating countries. The benefits 
subject to a limit. Economic integration in the 
of extended markets could be particularly 
region has progressed the most under the 
significant for smaller and poorer economies, 
ASEAN process, which will deepen further 
as observed in chapter one. The diversity 
with the implementation of complementary 
in the levels of development across the 
agreements to AFTA, such as the ASEAN 
region makes regional economic integration 
Framework Agreement on Trade in Services 
particularly fruitful as the synergies between 
(AFAS), the ASEAN Industrial Cooperation 
factor endowments, production structures 
(AICO) scheme, the ASEAN Investment 
and specializations provide for mutually 
Area (AIA), and the formation of the ASEAN 
beneficial exchanges. Similar synergies exist 
Economic Community planned for 2015. 
between countries in the region and others 
Following the ASEAN lead, SAARC adopted 
outside the region, and recent initiatives such 
the South Asian Agreement on Trade in 
as the Trans-Pacific Partnership (TPP) expect 
Services (SATIS) in 2010 to complement 
to take advantage of them (see box II.2).
SAFTA, and is working on an investment 
agreement. Agreements such as AFTA, SAFTA, 
In terms of integration across the subregions, 
BIMSTEC-FTA, Pacific Island Countries Trade 
the  engagement of ASEAN with neighbouring 
Agreement (PICTA) and the Asia-Pacific Trade 
countries around the grouping as dialogue 
Agreement (APTA) provide room for special 
partners has produced ASEAN+1 FTAs with 
and differential treatment (SDT) to least 
Australia, China, India, Japan, the Republic 
developed countries, offering them longer 
of Korea and New Zealand. The dialogue 
periods to tariff elimination, along with special 
partners have also been involved in bilateral 
measures regarding rules of origin (ROO). 
deals among themselves, such at the India-
Japan and the India-Republic of Korea 
The Asia-Pacific network of FTAs and RTAs 
comprehensive economic partnership 
as summarized in figure II.10 presents a 
agreements. The dialogue process has also 
picture of a dense web of trade arrangements 
led to broader groupings. These include 
criss-crossing the region, mostly within the 
the East Asia Free Trade Agreement (EAFTA) 
subregions but also linking the subregions, 
proposed within the framework of ASEAN+3 
such as ECOTA linking some Central Asian 
Summit; and the Comprehensive Economic 
countries with some South and West Asian 
Partnership of East Asia (CEPEA) proposed in 
countries and BIMSTEC linking the South 
the framework of the East Asia Summit (EAS) 
Asian countries with some South-East Asian 
combining ASEAN+6 countries. CEPEA brings 
countries. However, the region does not 
together 16 of the largest and fastest-growing 
have a seamless larger market as most of the 
economies. A RTA among them could create 
agreements are bilateral or subregional in 
the third pole of a multi-polar global economy, 
nature. It is also not conceivable to coalesce 
along with NAFTA and the European Union.53 
these agreements into a broader arrangement 
due to different scopes and coverage and 
The feasibility studies of the EAFTA and CEPEA 
rules. One of the key components of a scheme 
were conducted in parallel by the track-II study 
of economic integration is to create a larger 
groups and their reports were presented to 
integrated market through trade liberalization 
the leaders at the twelfth ASEAN+3 Summit 
and trade facilitation that enables businesses 
and the fourth East Asia Summit, which were 
in the region to be restructured on the most 
both held in Hua Hin, Thailand in October, 
efficient basis and to exploit the economies of 
2009. In addition, independent simulation 
scale, scope and specialization. This process 
studies using computable general equilibrium 
43

BOX II.2. Trans-Pacific Partnership  
The Trans-Pacific Partnership (TPP), also known as the Trans-Pacific Strategic 
Economic Partnership Agreement, is a trade agreement currently under 
negotiation among the following nine countries: Australia, Brunei Darussalam, 
Chile, Malaysia, New Zealand, Peru, Singapore, the United States and Viet Nam.  It 
aims to be a comprehensive agreement covering the main pillars of a free trade 
agreement, including trade in goods, rules of origin, trade remedies, sanitary and 
phytosanitary measures, technical barriers to trade, trade in services, intellectual 
property, government procurement, competition policy, and engagement with 
small- and medium- enterprises.
Formal discussions of TPP were launched on the sidelines of the 2002 Asia-Pacific 
Economic Cooperation (APEC) Leaders’ Meeting in Los Cabos, Mexico, by official 
leaders of Chile, Singapore and New Zealand. Four rounds of negotiations were 
held between 2003 and 2005. At the fifth round of negotiations in April 2005, 
Brunei Darussalam took part as a full negotiating party after which the trade 
bloc became known as the Pacific-4 or P4. In September 2008, the United States 
announced that it would begin negotiations to join TPP in 2009.  In November 
2008, Australia, Viet Nam, and Peru announced that they would also be joining 
the P4 trade bloc. In October 2010, Malaysia announced that it had also joined 
the TPP negotiations. Canada, Japan, the Philippines, the Republic of Korea, 
and Taiwan Province of China have also expressed interest in TPP membership. 
The first round of formal negotiation was held in Melbourne on 15-18 March 
2010. From March 2010 to November 2011, nine rounds of TPP negotiations and 
four meetings on the sideline of APEC meetings were held. In late 2011, three 
additional countries, Japan, Canada and Mexico, announced their intention to 
join.
One of the concerns about the TPP is how to relate the new agreement to 
existing RTAs. Several TPP countries already have multiple agreements in place 
and many of them are agreements between TPP members. As each agreement 
has different rules of origin, it is not so easy to simply “stitch them all together” in 
a new agreement.  Three possible models are possible to deal with this problem: 
(1) the TPP agreement would supersede existing bilateral RTAs between 
members; (2) the TPP would exist side-by-side with all the existing agreements 
and business would  be allowed to choose whichever agreement gives them 
the greatest benefits; or (3) the TPP would become a hybrid agreement in which 
some sections of the TPP replaced existing agreements in some areas while other 
portions of existing RTAs that were not covered or covered differently would 
continue to exist. 
Early discussions in the TPP suggested that the first option was preferable. 
Assuming that the new TPP deal provides better, wider-ranging liberalization 
and coverage than existing agreements, businesses would likely take advantage 
44

CHAPTER  TWO
Towards a broader integrated market
BOX II.2. Continued
of the TPP preferences. Thus, a new TPP agreement should replace existing 
arrangements as businesses across the nine member countries would be 
working from the same agreement. This would streamline trade flows by 
allowing exporters to, for example, make only one rule of origin calculation 
before shipping goods to multiple TPP members. Another argument for a wholly 
new agreement is that it would increase incentives for government officials and 
business leaders to take the talks seriously. Ignoring existing agreements and 
starting over with new negotiations might be easier for negotiators who could 
then aim for an ideal outcome from the beginning.
However, economic and political realities in some member countries make this 
approach problematic. Many of the provisions in existing RTA agreements were 
carefully crafted compromises, offering a balance of benefits, opportunities 
and cost to the economic interests in each member. Thus, replacing existing 
agreements with a common one would alter or even undermine the balance of 
benefits in place and may unravel the partnerships between States from previous 
deals. Therefore, the United States proposed the hybrid model that each country 
will conduct bilateral negotiations with TPP member countries with which it does 
not already have a RTA. It would then have eight different bilateral deals and 
anything not already covered in these bilateral agreements could be addressed 
multilaterally among the TPP members. The final document, then, would include 
a partially common agreement that would apply to all nine countries as well as 
some separate annexes and schedules with specific commitments for individual 
countries. 
The second round of TPP talks in June 2010 failed to settle the issue of how the 
TPP would sit in relation to other RTAs. The United States came out as a strong 
supporter of keeping existing market access agreements from bilateral RTAs 
while Australia, Singapore and New Zealand argued hard for a comprehensive 
agreement in the TPP that would supersede existing RTA agreement. On a 
practical level, the amount of work it would take to manage a hybrid system 
would be significant. The issue is most stark in market access for goods, since 
all of the existing RTAs contain various provisions for reducing barriers to trade 
in goods.a Although a deal could not be reached by APEC Leader’s meeting in 
November 2011, as targeted, a five-page “broad outlines” of the agreement was 
released to the public. The statement noted the following defining features for 
the TPP: comprehensive market access; fully regional agreement; cross cutting 
trade issues (the ‘horizontal issues’); new trade challenges (digital economy and 
green technology); and a living agreement.
Sources:  Elms and Lim (2012).
a As an example, suppose a manufacturer of nails was eligible for zero tariffs under the Canada-
U.S. RTA while Mexican nails were still subject to an interim tariff of six percent. Officials had 
to create a rule that all incoming products needed to be marked with a country of origin label 
in order to differentiate between Canadian, American and Mexican nails crossing the border. 
Customs officials then have to apply the correct tariff rates to the particular shipment.
45


FIGURE TITLE
II.10. 
Network of trade agreement between countries in Asia and the Pacific
Source: ESCAP based on APTIAD Trade Agreements database; and ASEAN Secretariat. Available from www.aseansec.org/20182.htm and www.
aseansec.org/22765.
Notes: Solid lines represent concluded agreements. Dashed lines represent both agreements formally under negotiation and two proposed 
agreements, EAFTA and CEPEA, for which formal negotiations have not started.
models have shown that both EAFTA and 
its engagement with the dialogue partners. 
CEPEA hold significant welfare gains for their 
During the Summit, three working groups in 
member countries. Higher welfare gains were 
the areas of trade in goods, trade in services 
reported for CEPEA compared with alternative 
and investment were established to define 
options because of the larger market size 
the specific principles and a template under 
and synergies brought about by the three 
which ASEAN will engage with its partners. 
additional members, Australia, India and New 
As elaborated below, these proposals could 
Zealand.54 More recently, at the nineteenth 
serve as stepping stones to the development 
ASEAN Summit held in Bali, Indonesia in 
of a broader and unified Asia-Pacific market 
November 2011, an ASEAN Framework for 
and economic community.
Regional Comprehensive Economic Partner-
ship was adopted to broaden and deepen 
46

CHAPTER  TWO
Towards a broader integrated market
Cooperation in trade facilitation
be increasingly common include those on 
automation/use of ICT risk management, 
Although trade facilitation measures are 
advance ruling and single windows. 55 
implemented by national authorities, their 
effectiveness depends largely on the extent 
An important aspect of trade facilitation 
to which regulations affecting trade are 
is standards harmonization and mutual 
harmonized across countries and on their 
recognition and conformity assessment 
cooperation in sharing information. As a 
procedures. In this direction, SAARC has made 
result, bilateral and regional cooperation is 
progress. The South Asian Regional Standards 
essential. To realize the full benefits of single 
Organisation (SARSO) is being set up in Dhaka 
windows and other electronic trade data 
to implement the Regional Action Plan on 
exchange systems, one of the most important 
Standards, Quality Control and Measures. 
goals of regional cooperation is to ensure 
Within the SAARC framework, harmonization 
that all electronic data and documents in 
of standards in twelve identified products is 
national single windows are accepted by the 
being undertaken. In addition, the SAARC 
authorities of partner countries.  However, 
Agreement on Multilateral Arrangement on 
while international standards have been 
Recognition of Conformity Assessment and 
developed to address technical issues 
the SAARC Agreement on Implementation 
related to cross-border data exchange, there 
of the Regional Standard were signed during 
has been little progress in developing an 
the seventeenth SAARC Summit held in Addu, 
appropriate international legal framework 
Maldives in November 2011. With regard to 
for the cross-border electronic exchange 
customs cooperation, the SAARC framework is 
of trade data and documents. Indeed, the 
focusing on building infrastructure, including 
pioneering ASEAN Single Window initiative 
roads and railways networks near the Land 
which aims to develop a regional Single 
Border Customs Stations (LCSs), smoothening 
Window environment for its members by 
of customs clearance procedures at LCSs, 
2012 (see box II.3) has experienced difficulties 
standardization and harmonization of export 
in  establishing the necessary legal basis for 
documentation, automation in customs 
electronic exchange among participating 
clearance including through electronic data 
member countries. An additional challenge is 
exchange, and harmonization of tariff lines for 
building capacities for the effective utilization 
top 100 8-digit tariff lines.56
of single windows and paperless trade, a key 
objective of the United Nations Network of 
An essential component of trade facilitation 
Experts for Paperless Trade for Asia and the 
is transit facilitation measures, although they 
Pacific (UNNExT) (see box II.4).
are usually not specifically covered in trade 
agreements. While separate bilateral and 
Most RTAs among economies of the region now 
regional transit agreements are often in place 
include trade facilitation provisions. The latest 
among developing economies of the region, 
ASEAN Agreement on Trade in Goods (ATIGA), 
the extent to which they are implemented 
which came into force in 2010 includes an 
– as well as their consistency with existing 
entire chapter on trade facilitation. The third 
multilateral trade commitments, such as WTO, 
round of negotiations of APTA also resulted 
GATT Article V – is not always clear. Significant 
in a Trade Facilitation Framework Agreement 
barriers to transit trade remain in place in 
among its six members (Bangladesh, China, 
South and Central Asia. 
India, the Lao People’s Democratic Republic, 
the Republic of Korea and Sri Lanka) in 2009. A 
South-East Asia has made more progress 
comparative study of recent RTAs conducted 
in facilitating transit trade through a mix of 
by ESCAP found that all agreements commit 
bilateral, subregional and regional agreements 
to increasing transparency, including through 
and initiatives. However, according to a recent 
an obligation to publish laws and regulations 
report, the comprehensive GMS Cross-border 
affecting trade, and recognize the importance 
Transport Agreement (CBTA) (see box II.5) is 
of using international standards for trade 
still not fully operational and the transport 
facilitation. Other measures that appear to 
industries of the region remain fragmented 
47

BOX II.3. ASEAN Single Window project implementation
The ASEAN Single Window (ASW) aims to facilitate international trade and 
investment through expeditious clearance and release of cargoes by the Customs, 
and constitutes one of the mechanisms to realize the ASEAN economic community.a  
The Protocol to Establish and Implement the ASEAN Single Window was signed in 
2006 between the Governments of Brunei Darussalam, Cambodia, Indonesia, the 
Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, 
Thailand and Vietnam. 
The summarized signing countries agreed on the following among other points:b 
i.  To provide a legal and technical framework to establish and implement the 
ASEAN Single Window and National Single Windows as regional commitments 
towards the establishment of an ASEAN Economic Community; 
ii.  To   develop  and  implement  the  National Single Windows based on 
international standards and best practices as established in international 
agreements and conventions concerning trade facilitation and modernisation 
of customs techniques and practices
In May 2008 the ASW Exchange Gateway became operational aiming to facilitate 
information exchange (CEPT Form D) on a trial basis. 
By 2009, there were major achievements in the activation of NSW in Brunei 
Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand and in 
implementing the common language of dialogue for the NSW system - the ASEAN 
Data Model (Work base 1.0).
The ASW Pilot Project began implementation in seven member states, namely 
Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, Thailand and 
Viet Nam in November 2011. 
ASW is expected to become fully operational in all participating member States 
by the end of 2015, enabling ASEAN officials to exchange customs declaration, 
preferential certificate of origin, and other trade and customs information through 
a single, shared, secure network architecture.
Sources: ASEAN, 2009, ASEAN Single Window Fact Sheet, 2nd Edition, 24 February; ASEAN, 2005, Agreement to 
Establish and Implement ASEAN Single Window, Kuala Lumpur;  The Jakarta Post, ASEAN Ministers to Finalize 
Single Window Project Draft, Mustaqim Adamrah, 13 March 2010, available from www.thejakartapost.com/
news/2010/03/13/asean-ministers-finalize-single-window-project-draft.html, accessed on 19 April 2012; 
Asian Development Bank, 2009, CAREC Transport and Trade Facilitation: Partnership for Prosperity;  Economic 
and Social Commission of Asia and the Pacific and ADB, 2009, Designing and Implementing Trade Facilitation 
in Asia and the Pacific; and ASEAN, 2006, Protocol to Establish and Implement the ASEAN Single Window, 20 
December; USAID 2011, Press Release, 1 December, available from www.usaid.gov/rdma/articles/press_
release_1508.html. Accessed on 19 April 2012.
a  ASEAN Single Window Fact Sheet, 2nd Edition, Association of South East Asia Nations, 24 February 2009.
b  Protocol to Establish and Implement the ASEAN Single Window, 20 December 2006.
48

CHAPTER  TWO
Towards a broader integrated market
BOX II.4. Achieving paperless trade in Asia and the Pacific
Adopting electronic technologies to move goods and information through 
an international supply chain can bring significant efficiency, reliability and 
predictability to international trade transaction. UNNExT facilitates peer-
learning and knowledge sharing to help developing countries catch up with 
the economies in the region that are  most advanced in implementing of trade 
facilitation measures and make use of innovations like the Electronic Single 
Window and paperless trade.
Electronic information is easier to process and reduces delays and costs 
throughout the supply chain. For governments, it can increase security of 
international trade and revenue trade transactions. For the private sector, it 
brings efficiency and transparency to the process and most importantly can 
increase predictability and reduce transaction costs. The implementation 
of paperless trade should be carried out in a phased manner. According to 
the United Nations Centre for Trade Facilitation and Electronic Business, the 
successful implementation of paperless trade systems requires the following 
steps: business process analysis, process simplification and harmonization, 
documents simplification and alignment, national data harmonization, cross-
border data harmonization and exchange and e-single window and paperless 
trading.a
For developing countries, paperless trade can be challenging given the 
requirement of robust ICT infrastructure. Still a phased approach may help 
eventually reach the goal of establishing paperless trade systems like an 
electronic single window. Ultimately, the countries can benefit from greater 
efficiency in government agencies and private sectors. Experiences demonstrate 
that implementation of paperless trade systems require strong political 
and government support and human and financial resources. Governments 
should take a leading role in establishing a conducive business environment 
for paperless trade. A collaborative public-private approach with effective 
stakeholder consultation works best for such an endeavour.
a  See ESCAP, 2009, Business Process Analysis Guide; ESCAP, 2009-2011, UNNExT Policy Brief Series 1-7, available from www.
unescap.org/unnext/pub/brief.asp; ESCAP and ADB, 2009, Designing and implementing trade facilitation in Asia and the 
Pacific.
and unsophisticated.57  Apart from political 
In search for a broader framework for 
will, a main issue impeding implementation 
regional integration
of effective transit systems is the lack of 
collaboration between trade, transport 
Bilateral and plurilateral agreements for small 
and/or customs authorities and the limited 
groups of countries help increase trade, but, 
involvement of local (at-the-border) public 
as observed earlier, they do not contribute 
and private stakeholders at early stages 
to the creation of a seamless, region-wide 
of negotiations.
market because of their differences in scope, 
58 Another very important 
subregional initiative for trade facilitation 
coverage and rules. What is needed is not just 
is the Central Asia Regional Economic 
to deepen integration within subregions but 
Cooperation (CAREC) Transport and Trade 
also to foster trade links across subregions 
Facilitation Strategy (see box II.6).
to facilitate exploitation of the synergies 
between the subregions and to harness the 
49

BOX II.5. The Greater Mekong Subregion (GMS) Agreement on Facilitation of 
Cross-Border Transport of Goods and People
The Greater Mekong Subregion (GMS) Agreement is a multilateral instrument for 
the facilitation of cross-border transport of goods and people. The Agreement 
provides a practical approach in the short to medium term, to streamlining 
regulations and reducing nonphysical barriers in GMS. It incorporates the 
principles of bilateral or multilateral action and flexibility to recognize procedural 
differences in each of the GMS countries, and includes references to existing 
international conventions that have demonstrated their usefulness. It also takes 
into account and is consistent with similar initiatives being undertaken by ASEAN. 
The specific aspects which are covered in this agreement are:a
i.  single-stop/single window customs inspection;
ii.  cross-border movement of people, goods, and vehicles;
iii.  simplification and harmonization of border clearance formalities, 
procedures and documents;
iv.  transit traffic regimes, including exemption from physical customs 
inspection, bond deposit, escort, phytosanitary and veterinary inspection;
v.  advance exchange of information;
vi.  requirements that road vehicles must meet to be eligible for cross border 
traffic;
vii.  exchange of commercial traffic rights; and
viii. infrastructure, including road and bridge design standards, road signs 
and signals.
a  ESCAP and ADB 2009, Designing and Implementing Trade Facilitation in Asia and the Pacific.
potential of efficiency seeking industrial 
consistency with GATT Art. XXIV and GATS 
restructuring across the Asia-Pacific region.
Art. V; and (iii) have comprehensive scope, 
covering trade in services, investment, trade 
To fully exploit the potential of regional 
and transit facilitation and cooperation. 
economic integration and for efficiency-
Such agreement should be progressively 
seeking industrial restructuring to take 
deepened, and it should also be equitable 
place, the Asia-Pacific region needs a broader 
and provide special and differential treatment 
regional trade and economic cooperation 
to poorer countries, as well as assistance for 
arrangement that should (i) be wider in 
lagging geographical areas and vulnerable 
coverage, extending to all economies in the 
sections of the population. In this study, we 
ESCAP region; (ii) extend to substantially 
suggest three possible routes to evolve a 
all trade using a negative list basis, for 
broader integrated market in the Asia-Pacific 
50

CHAPTER  TWO
Towards a broader integrated market
BOX II.6. Central Asia Regional Economic Cooperation (CAREC) Transport and 
Trade Facilitation Strategy
The Central Asian has made some progress in developing transport infrastructure, 
customs modernization and trade facilitation. To expand on this, they are 
working towards further improving transport infrastructure and to reduce the 
cost of trade. Recognizing the synergy between transport and trade, CAREC has 
developed a transport and trade facilitation strategy (TTFS) for the period 2008-
2017. This  ten-year action plan aims to improve the subregion’s competitiveness 
by taking an integrated approach, which entails combining transport investments 
with trade facilitation initiatives and enhancing the three pillars of the strategy-
infrastructure, management and technology. Key elements of the strategy are 
coordinated improvements of transport infrastructure and trade facilitation, 
including harmonized cross border regulations, procedures, and standards 
along priority transport corridors. These improvements will result in significant 
and measurable reductions in transport costs and time for local, cross-border, 
and transit traffic. It will also, as a result, lead to an increase in trade along the 
corridors. 
The goals of the CAREC trade facilitation component are to:
i.  reduce transaction costs and time significantly by improving administrative 
efficiency and simplifying, standardizing, and harmonizing trade 
procedures; 
ii.  encourage the free movement of people and goods; 
iii.  enhance the transparency of laws, regulations, procedures, and forms, 
and share information on these and other trade issues. 
The trade facilitation component comprises three elements aimed at reducing 
trade costs: promoting concerted customs reform and modernization; using 
an integrated trade facilitation approach through interagency cooperation and 
public–private partnerships; and developing efficient regional logistics.
region: 
major subregional groupings that could be 
1.  An Asia-Pacific Economic Area,
covered in APEA are ECOTA, AFTA, SAFTA, and 
the proposed Pacific Agreement on Closer 
2.  Building on ASEAN+ approach, and
Relations-Plus, which encompasses the Pacific 
3.  A new Asia-Pacific Trade Agreement (APTA II).
Islands Free Trade Agreement (PICTA) plus 
Australia and New Zealand. Overall these four 
An Asia-Pacific Economic Area (APEA): The first 
trade agreements include 43 of the 51 Asia-
option is to create an APEA as a framework 
Pacific economies.59 A modelling exercise 
to connect existing subregional groupings 
conducted by ESCAP suggests that member 
to exchange trade preferences between 
countries would gain substantially if the four 
members, similar to the European Economic 
groupings were joined in APEA (figure II.11).
Space Agreement that combines the Single 
Market of the European Union with members 
The potential welfare impacts of the proposals 
of the European Free Trade Association. The 
are analysed using simulations based on data 
51


from the Global Trade Analysis project (see 
however, be complicated by the fact that the 
annex for details). For assessing the potential 
four subregional groupings are at different 
welfare impacts from the APEA proposal, two 
stages of their evolution with the most 
scenarios are considered: “Scenario A”, which 
advanced of them, AFTA, targeting to evolve 
covers full trade liberalization within each 
into the ASEAN Economic Community by 
bloc; and ”Scenario B” which adds full trade 
2015 and PACER-Plus still under negotiation. 
liberalization between each bloc. In both 
Furthermore, a major limitation of this 
cases, the simulations consider the long-run 
approach is that some of the region’s largest 
effects of a full removal of tariffs on trade 
markets, such as China, Japan and Republic 
in goods and the implementation of trade 
of Korea, would remain excluded, which 
facilitation measures. The two scenarios are 
reduces the potential gains of this integration 
schematically represented in figure II.11.
initiative significantly. In any event, there is 
a tremendous potential of mutual learning 
The results are shown in figure II.12. They 
across the subregional groupings of the 
suggest that full trade liberalization under 
region and sharing their best practices. Hence, 
each of the four agreements would be 
a consultative committee of subregional 
beneficial but that the gains would be 
groupings should be constituted to facilitate 
significantly greater under the scenario of full 
that mutual learning.
trade liberalization within and between the 
blocs: more than tripled for SAFTA, more than 
Building on ASEAN+ approach: The ASEAN 
doubled for PACER-Plus, more than 50 per 
dialogue process has contributed towards a 
cent for AFTA and 36 per cent for ECOTA.
discussion of broader regional arrangements. 
Two proposals are being discussed in the 
While these results are encouraging,  ASEAN framework include an East Asia 
implementation of this approach may, 
Free Trade Area (EAFTA) among ASEAN+3 
FIGURE TITLE
II.11. 
Scenarios A and B for trade liberalization in AFTA, SAFTA, ECOTA and PACER-Plus
Source: ESCAP.
52

CHAPTER  TWO
Towards a broader integrated market
FIGURE TITLE
II.12. 
Long-run welfare gains for four subregional agreements, including trade facilitation
Scenario B 
1.8
full trade 
liberalization 
within and 
P
D 1.5

c
between the 
lo
 G
four blocs
 b
s
ng' 1.2
r each
o

oupi
s f
h gr
c 0.9

ain
a
Scenario A 
e g
full trade 
ar
 of e
liberalization 
elf
ge 0.6
within the 
nta
al w
e
bloc
u
n

rc
0.3
An
 pe
s
a

0.0
AFTA
ECOTA
SAFTA
PACER-Plus
Source: ESCAP based on John Gilbert (2012). 
Notes: The simulations consider the scenario in which trade facilitation measures are included. See annex for further details.
countries, and the Comprehensive Economic 
(see table II.9). After accession by additional 
Partnership for East Asia (CEPEA) originating 
countries, it would lead to a broader regional 
in the East Asia Summit which additionally 
market.
includes Australia, India and New Zealand 
(ASEAN+6). One option could be to take the 
In the simulation of welfare gains from 
more inclusive of the two approaches, CEPEA, 
expanding the ASEAN FTA to CEPEA two 
and treat it as the nucleus of an incipient Asia-
scenarios were considered: without trade 
Pacific RTA to which other countries could 
facilitation and with trade facilitation. 
accede (figure II.13). 
Simulation results find substantial welfare 
gains, at close to 0.8 per cent of the GDP of 
The advantage of this approach is that a 
CEPEA members when trade facilitation 
feasibility study and some subsequent 
measures are considered (figure II.14).
exploration in ASEAN+ working groups have 
been completed. All six dialogue partners 
Overall, the results suggest both the need of 
have concluded ASEAN+1 FTAs that can 
aiming at broader agreements, covering larger 
be easily multilateralized with common 
number of countries, and the importance 
and cumulative rules of origin. Combining 
for such agreements to include provisions 
the region’s growth poles, China and India, 
to reduce trade costs through various trade 
with the advanced economies of Japan and 
facilitation measures.
Australia, and the Republic of Korea and those 
of ASEAN, could produce a regional grouping, 
A new Asia-Pacific Trade Agreement (APTA 
comparable in stature with the European 
II):  The third option is the creation of a new 
Union and the NAFTA but outclassing them 
broader agreement open to all countries in 
in terms of dynamism by a wide margin 
the ESCAP region. ESCAP, having sponsored 
53


a pioneering RTA in the region in 1975, could 
possible coverage of any existing or under 
provide auspices for a region-wide agreement, 
negotiation regional trade agreement in 
which could be called the Asia-Pacific Trade 
Asia and the Pacific. As this option would 
Agreement II (APTA II) or Asia-Pacific Trade and 
not have any baggage, it would be possible 
Economic Cooperation Agreement (APTEC). 
for it to have all the desirable features, 
Such agreement is shown schematically in 
including a comprehensive scope, based on a 
figure II.15.
negative list and trade facilitation, investment 
and economic cooperation, including the 
APTA II could coalesce the multiple bilateral 
flexibilities and special and differential 
and subregional FTAs into a broader 
treatment features for the poorer countries to 
region-wide trade and comprehensive  make it a RTA with a human or Asia and the 
economic cooperation arrangement. Such 
Pacific face and as a  model for the regional 
an arrangement would have the broadest 
economic integration.
FIGURE TITLE
II.13. 
CEPEA as a potential nucleus of a broader integrated market
Source: ESCAP.
TABLE TITLE
II.9. 
CEPEA in relation to the EU and NAFTA in 2011 
Indicator
EU(27)
NAFTA
CEPEA(16)
15 789
18 115
26 136
Gross national income (PPP)
 (20.03)
 (22.99)
 (33.16)
17 960
18 009
19 640
GDP, current prices (billions)
(25.65)
(25.72)
(28.05)
6 029
2 282
5 126
Exports (millions)
(33.09)
(12.53)
(28.14)
 682 
 299 
5 214
International reservesa
 (7.19)
 (3.15)
 (54.94)
 500 
 457 
3 367
Population (millions)
(7.28)
(6.65)
(48.98)
Source: ESCAP based on IFS Database, WEO Database and WTO database. 
Note: Percentage of world total in parenthesis.  
a  International reserves data are for 2010.
54



CHAPTER  TWO
Towards a broader integrated market
FIGURE TITLE
II.14. 
Potential benefits of expanding ASEAN Free Trade Area to ASEAN+6 (CEPEA)
Source: ESCAP based on John Gilbert (2012).
FIGURE TITLE
II.15. 
Starting afresh through the broadest and most comprehensive possible agreement
Source: : ESCAP. 
55

FIGURE TITLE
II.16. 
Welfare gains from region-wide liberalization
South-East Asia
South and South-West Asia
With trade facilitation
Asia and the Pacific
Without trade facilitation
Pacific
East and North-East Asia
North and Central Asia
0.0
0.4
0.8
1.2
1.6
2.0
Annual welfare gains for the Asia-Pacific subregions, as per centage of the 
region's GDP
Source:  ESCAP based John Gilbert (2012). 
TABLE TITLE
II.10. 
Summary of welfare gains in the simulations 
Liberalization 
Liberalization 
of trade among 
of trade among 
and between 
PACER+, 
PACER+, 
CEPEA (ASEAN plus Japan, 
A free trade agreement 
ASEAN, SAFTA 
ASEAN, SAFTA 
Republic of Korea, China, India, 
encompassing all members of 
and ECOTA
and ECOTA
Australia and New Zealand)
ESCAP
With trade  
Without trade 
With trade 
Without trade 
With trade 
Region
facilitation
facilitation
facilitation
facilitation
facilitation
Millions of US dollars
LDCs
 752
 936
 4
 286
 395
1 234
LLDCs
1 274
1 256
 0
 0
 840
1 864
SIDs
 333
 534
 0
 0
 214
 526
Other
23 365
46 525
59 247
84 717
101 445
136 609
Percentage of the GDP
LDCs
0.58
0.72
0.01
0.98
0.30
0.95
LLDCs
1.10
1.09
0.53
1.18
SIDs
1.28
2.05
0.82
2.02
Other
0.66
1.32
0.54
0.77
0.78
1.05
Source: ESCAP based on John Gilbert (2012).
Notes: Welfare gains for the GTAP regions included in each grouping. For PACER+, ASEAN, SAFTA and ECOTA the LDCs are Cambodia, Lao People’s 
Democratic Republic, Rest of South-East Asia, Bangladesh and Rest of South Asia; the LLDCs are Kazakhstan, Kyrgyzstan, Rest of Central Asia and 
Azerbaijan; and the SIDs are the Pacific Islands. For CEPEA, the LDCs are Cambodia, Lao People’s Democratic Republic and Rest of South-East Asia. 
For APTA II, the LDCs and SIDs are the same as for PACER+, ASEAN, SAFTA and ECOTA, but the LLDCs also include the Rest of East Asia and Armenia.
56

CHAPTER  TWO
Towards a broader integrated market
Simulation studies indicate that such an 
its markets for trade and investment, and to 
agreement has the potential to generate the 
a certain extent for labour is now a good time 
largest welfare gains for the region (figure II.16) 
to consolidate these initiatives and build on 
of up to $140 billion or over 1 per cent of the 
them a broader integrated market that would 
region’s GDP with broad and comprehensive 
unleash the huge potential of efficiency-
coverage. When trade facilitation measures 
seeking industrial restructuring for creating 
are also included in the agreement, as it 
value for all the participating economies 
should be this case, the average gains are 36 
and subregions. A key factor supporting a 
per cent higher than without trade facilitation 
successful integration is infrastructure, which 
measures. The additional gains accruing from 
is the focus of the next chapter.
trade facilitation are largest in North and 
Central Asia (almost 100 per cent higher), 
reflecting the potential benefits for the 
subregion’s landlocked developing countries,, 
but they are also important for South-East Asia 
(67 per cent higher), reflecting the potential 
ENDNOTES
gains from integration for countries such 
as Cambodia, the Lao People’s Democratic 
1  ESCAP, 2011a and 2011b.
Republic and Myanmar, whose current trade 
costs are very large. 
2  An important caveat is that this indicator does not 
take into account the costs of trade and transportation.
A comparative picture of the welfare impacts 
from the three options in absolute terms and 
3  Among the earliest initiatives is UNCTAD’s TRAINS 
as percentages of the GDP are summarized 
which is accessible through the World Bank’s WITS 
in table II.10. It shows that even though the 
software application but it has not been regularly 
overall magnitude of the welfare gains would 
updated. A multiagency initiative (MAST) was started in 
be at nearly $50 billion, APEA could be highly 
2006. A report on pilot studies, with new definition and 
rewarding for the members participating in 
classification of NTMs was issued in 2010 (see UNCTAD, 
subregional groupings of ASEAN, SAARC, ECO 
2010b; and Basu, Kuwahara and Dumesnil, 2011). 
and PICTA. The ASEAN plus approach could 
bring in up to $85 billion worth of welfare 
4  For details, see ESCAP, “Facilitating Intraregional 
gains with the accession of other economies. 
Trade”, in Asia-Pacific Trade and Investment Report 
2011: Post-crisis Trade and Investment Opportunities 
The APTA-II approach, due to its universal 
(Bangkok, 2011a), pp. 89-100. 
coverage, would generate the larger welfare 
gains, of $140 billion, of the three approaches 
5  ADB and ESCAP, 2009.
considered. In addition, countries with special 
needs such as least developed countries, 
6  The comprehensive trade cost estimate is an 
landlocked developing countries (LLDCs) and 
objective measure based on macroeconomic data 
small island developing States (SIDS), tend 
rather than perception survey data. It is a very broad 
aggregate measure of international trade costs 
to have higher welfare gains as a proportion 
including, inter alia, direct and indirect costs related to 
of GDP than others, corroborating results 
fulfilling regulatory import and export requirements as 
discussed in chapter one.  Furthermore, the 
well as costs resulting from differences in currencies, 
welfare gains for the countries with special 
languages, culture and geographical distance. 
needs would rise if special and differential 
Domestic and international shipping and logistics costs 
associated with imports and exports are also included.
treatment, technical and economic assistance 
is provided to poorer regions, as proposed in 
7  Duval and Utoktham, 2011a.
this study.
8  Duval and Utoktham, 2011b.
Reaching out across the region
9  For more details on this issue, see ESCAP, 2011c.
As this chapter has highlighted, the Asia-
10  Source: WTO and UNCTAD, WTO International Trade 
Pacific region has steadily been integrating 
Statistics online (accessed 12 April 2012).
57

11  All these numbers are underestimates because of 
29  ESCAP calculations based on ASEAN, 2006 and 
the limited number of trading partners for which data 
2011a.
are available. 
30  Available from www.vietpartners.com/Statistic-fdi.
12  UNWTO, “UNWTO and Asia Pacific Ambassadors 
htm. 
Discuss Global Tourism Issues,” March 2012. Available 
from http:// asiapacific.unwto.org/en/news/2012-
31  Majumdar and Verma, 2008.
03-23/unwto-and-asia-pacific-ambassadors-discuss-
global-tourism-issues. 
32  Singapore has dominated South-East Asia’s FDI to 
India. It accounted for 81 per cent of it in 2010.
13  Because of the non-standardize reporting across 
countries, it was not possible to obtain information 
33  This issue may be revisited to examine if India’s 
for all the Asia-Pacific subregions. For example, 
neighbouring countries may also use Mauritius as an 
the Pacific island developing economies and the 
intermediary to facilitate their investment to India. In 
countries of North and Central Asia other than the 
addition to India, Mauritius holds the double tax treaties 
Russian Federation were not included systematically 
with four South Asian countries, i.e., Bangladesh, Nepal, 
by all reporting countries. Thus, the share of tourism 
Pakistan and Sri Lanka (LOWTAX, 2011).
arrivals originated in the region reported in the table 
34  fDi Intelligence, 2011.
underestimates the actual share. 
35  Bangladesh, Board of Investment, 2012. 
14  Available from www.uis.unesco.org/Pages/default. 
aspx.
36  IMF, Coordinated Direct Investment Survey 2011. 
Available from http://cdis. imf.org/ (accessed 4 January 
15  Denisenko, 2010. 
2012).
16  Mahapatra et. al. ,2011.
37  Salidjanova, 2011. 
17  ESCAP, 2012.  
38  OECD, 2011.
18  The member States of the GCC are Bahrain, Kuwait, 
39  UNCTAD, 2011a.
Oman, Qatar, Saudi Arabia and United Arab Emirates.
40  According to UNCTAD, 2011d.
19  Regional Thematic Working Group on International 
Migration Including Human Trafficking, 2012; Huguet, 
41  UNCTAD, 2011a.
Chamratrithirong and Kerry Richter, 2011.
42  Pacific Trade and Invest, 2010.
20  Denisenko, 2010.
43  Wesley, 2011.
21  Ivakhnyuk, 2006.
44  Available from www.state.gov/r/pa/ei/bgn/2797.htm 
22  ESCAP, 2010a.
#econ.
23  Hayes, 2010.
45  Available from www.pacifictradeinvest.com/wp/?p 
=278. 
24  Regional Thematic Working Group on International 
Migration Including Human Trafficking, 2012.
46  ESCAP calculations based on UNCTAD, 2011a. 
25  Boston Consulting Group, “Global Challengers 2011”.  
47  IMF, Coordinated Direct Investment Survey 2011. 
Available from https://www.bcgperspectives. com/
Available from http://cdis. imf.org/ (accessed 4 January 
content/articles/globalization_companies_on_ the_
2012). 
move_2011_global_challengers/.
48  Hoekman 2011; Baldwin, 2011. 
26  Kumar, 2008.
49  Trejos, 2005. 
27  Ramamurti, 2011.
50  ESCAP, 2011a. 
28  ESCAP, 2011a.
58

CHAPTER  TWO
Towards a broader integrated market
51  The 15 regional trade agreements include also three 
plurilateral cross-continental trade agreements. For 
more details, see Asia-Pacific Trade and Investment 
Agreements Database (APTIAD), http://www.unescap.
org/tid/aptiad/.
52  See Kumar, 2007a. 
53  See Kumar, 2007b. 
54  see Kawai and Wignaraja, 2010.
55  For more details see Duval, 2011.
56  SAARC Secretariat. Available from http://www.saarc-
sec.org/areaofcooperation/detail.php?activity_id=47, 
and   http://www.saarc-sec.org/areaofcooperation/
detail.php?activity_id=42.
57  The CBTA was signed by Lao People’s Republic, 
Thailand, and Viet Nam in 1999. Subsequently, 
Cambodia (2001), China (2002) and Myanmar (2003) 
acceded to the CBTA. For a recent critical view of 
the degree of implementation of the CBTA, see e.g. 
Greater Mekong Subregion Business Forum, “Articles of 
Association of the  Greater Mekong Subregion Freight  
Transport Association (GMS – FRETA)”, November 2011.
58  See chapter three for more information on cross-
border and transit facilitation issues.
59  The members of these four agreements are the 
following. AFTA: Brunei Darussalam, Cambodia, 
Indonesia, Lao People’s Democratic Republic, Malaysia, 
Myanmar, Philippines, Singapore, Thailand and Viet 
Nam; ECOTA: Afghanistan, Azerbaijan, the Islamic 
Republic of Iran, Kazakhstan, Kyrgyzstan, Pakistan, 
Tajikistan, Turkey, Turkmenistan and Uzbekistan; 
PACER-Plus: Australia, Cook Islands, Federated States 
of  Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, 
New Zealand, Niue, Palau, Papua New Guinea, Samoa, 
Solomon Islands, Tonga, Tuvalu, Vanuatu; SAARC: 
Afghanistan, Bangladesh, Bhutan, India, Maldives, 
Nepal, Pakistan and Sri Lanka.
59


Photo by R. Manowalailao
60


CHAPTER THREE
Building seamless connectivity
UN Photo - Kibae Park
61


Three
Building 
seamless connectivity
Economic integration depends critically on the 
development of infrastructure that will strengthen 
connectivity both within and between countries, 
freeing up the flows of goods and services, 
investment, people and ideas.
Growth in Asia and the Pacific has been strongly 
influenced by the quality of infrastructure. Economies that 
develop better infrastructure grow faster.1 Investment 
in infrastructure not only increases an economy’s capital 
stock but also broadens the reach of economic activities 
and trade, creating opportunities for the realization of 
economies of scale. This, in turn, lowers production and 
distribution costs, which allows more goods to reach more 
people across greater geographic areas. The gains appear 
to be greatest for large-scale civil engineering projects, 
such as those related to transport and utilities.2  But even 
small, low-cost investments can have significant impacts, 
especially when they reach out to remote or poorer areas.
Though more difficult to quantify, countries also gain 
further benefits from infrastructure development through 
network externalities, which contribute to growth by 
allowing economies of specialization, encouraging the 
clustering of businesses and facilitating information 
exchanges. Moreover, in the Internet age, connectivity 
expands in many dimensions beyond physical links to 
encompass more complex and dynamic relationships that 
affect how networks operate.3 Even small connections 
between one network and another can quickly create 
wider, more valuable networks.4  That is why the issue of ICT 
infrastructure development is quickly gaining importance 
in discussions about regional connectivity. The region  
also has vast potential to utilize its energy resources more 
efficiently through the interconnection of producers and 
consumers of energy by oil and gas pipelines and electricity 
grids. Such interconnection could be cost-effective and 
offer opportunities in reducing the cost of energy, which is 
a critical input for development.
62

CHAPTER THREE
Building seamless connectivity
There are clearly wide disparities in the 
for airports and maritime ports. Non-physical 
breadth and quality of infrastructure between 
barriers to the movement of people and 
countries of the region. From the perspective 
goods are also greater for overland crossings 
of regional connectivity, the gap between 
as compared with maritime ports or airports 
the few wealthier countries and the middle- 
because the risk of damage and theft is higher 
and lower-income countries is hindering the 
and more difficult to monitor. 
full participation of countries in the region’s 
economic dynamism. Improving regional 
In the Asia-Pacific region, the maritime and 
connectivity will allow countries in Asia 
aviation sectors are relatively well connected to 
and the Pacific to take full advantage of the 
their respective global networks.   There is also 
region’s diverse natural endowments and 
a higher degree of private sector involvement 
productive capacities. 
in developing and managing infrastructures 
in these sectors. From a regional perspective, 
Against this backdrop, this chapter will explore 
therefore, the priority should be given to 
issues of connectivity for three major sectors, 
the development and upgrading of land-
namely transport, energy and ICT.
based transport infrastructure. Tremendous 
efficiency gains could also be realized by 
removing non-physical barriers to transport 
Transport
and improving intermodal connectivity. Both 
Transport is the backbone of economic 
of these steps would improve the efficiency 
activity and social development. Since ancient 
of transport services and raise the utilization 
times, the availability and cost of transport 
rates of existing infrastructure. 
have influenced both the location of trade 
centres and the volume of trade. Large-scale 
Maritime transport
increases in production and trade have been 
made possible with advances in transport, 
The expansion of international trade in Asia 
such as the diffusion of containerization. 
 
 
and the Pacific has depended on building the 
Most governments recognize that the respon-
capacity and efficiency of its major seaports, 
sibility for developing transport infrastructure 
particularly container ports. For the past two 
lies with them, and are therefore investing in 
decades, the region has dominated global 
ambitious medium- to long-term transport 
container handling, led first by Hong Kong, 
strategies and programmes. However, when 
China and Singapore in the early 1990s 
it comes to improving connectivity, each 
and  followed by China from the mid-1990s 
mode of transport – roads, railways, maritime 
to today. In 2011, the world’s eight busiest 
shipping and aviation – has its own physical 
container ports were in the ESCAP region: 
and operational characteristics which require 
Shanghai (China); Singapore; Hong Kong, 
 
different considerations. 
China; Shenzhen (China); Busan (Republic of 
Korea); Ningbo (China); Guangzhou (China); 
Aviation and maritime shipping, for example, 
and Qingdao (China).5
essentially move people and goods from 
point-to-point without intervening infra-
Asia’s most important liner routes, by volume, 
structure. Consequently, investment in these 
still run from Asia to Europe and North America. 
sectors has focused on individual airports 
But there has been a substantial increase in 
and maritime ports. In the past century, mari-
intra-Asian shipping, particularly between 
time ports dominated international trade 
China, Japan and the Republic of Korea, and 
and, as a result, attracted investment from 
between these countries and South-East Asia. 
both the public and the private sector. Land-
Almost all the region’s coastal countries are 
based modes and inland water transport, on 
now linked by direct shipping services or by 
the other hand, require the development of 
transhipment and transit operations through 
roads, railway tracks and inland waterways 
hub ports. Nevertheless, there is significant 
across vast geographic areas.  The sheer scale 
intercountry variation; shipping connectivity 
of these networks means that the cost of 
is still poor between many neighbouring 
maintaining them is much greater than that 
countries.6 The Pacific island developing 
economies have the added disadvantage of 
63

being located at a long distance from the fast-
cent of the changes in trade costs that are 
growing economies in the rest of the region. 
unrelated to non-tariff policies.8  Thus, as a 
Because of their remoteness, relatively small 
country’s liner connectivity index improves, 
populations and low trading volumes, it is 
the cost of shipping declines, boosting 
difficult for shipping companies to maintain 
competitiveness and increasing container 
regular services to them.
traffic. Data presented in table III.1 support 
this observation, suggesting that as liner 
One measure of shipping connectivity is 
connectivity increases, so does the volume of 
the United Nations Conference on Trade 
container traffic.9  Conversely, those countries 
and Development (UNCTAD) Liner Shipping 
which have witnessed a decline in liner 
Connectivity Index, which includes measures 
shipping connectivity, such as several island 
of the number and capacity of ships and the 
developing countries in the Pacific are likely 
extent of services.7 This shows that between 
to have faced higher trade costs in 2011.
2006 and 2011, shipping connectivity increased 
markedly in a number of the Asia-Pacific 
Governments can attract more ships, and 
economies. The highest value of the index as 
a wider range of ships, by investing and 
of 2011 is for China, followed by Hong Kong, 
maintaining their maritime ports. They may 
China; and Singapore (figure III.1). The value of 
also improve competitiveness by improving 
the index has grown spectacularly fast in Viet 
the efficiency of onward land transport, 
Nam, which as of 2011 was ranked seventh in 
particularly through railways. More ambitious 
the region. 
programmes of upgrading and modernization 
could be accelerated, however, through the 
An ESCAP study which analyses differences 
greater participation of the private sector in 
in trade costs found that liner shipping 
the development of ports and provision of 
connectivity accounts for about 25 per 
port services.
FIGURE TITLE
III.1. 
UNCTAD liner shipping connectivity index, 2006 and 2011
160
140
120
100
80
60
40
20
0
a
a
s
)
a
a
a
mar
oa
Fiji
sia
key
adesh
ine
ic of
iland
nk Indi
pore  China China
Maldives
 Korea
Myan
Sam
Tur
Cambodi
deration
PakistanTha
Viet Nam JapanMalaysi
Bangl
Indone
Sri La
ic of Singa
a New Guine
New Zealand
Philipp
 Kong,
sian Fe
Papu
Rus
Islamic Republ
Republ
Hong
2006
2011
Iran (
Sources: ESCAP based on UNCTAD, Review of Maritime Transport (Sales No. E.09.II.D.11), Review of Maritime Transport (Sales No. E.10.II.D.4), Review of 
Maritime Transport (Sales No. E.11.II.D.4); and Containerisation International, Containerisation International Yearbook 2011 (London, 2011).
Note: The index has five components: (a) the number of ships; (b) the total container-carrying capacity of those ships; (c) the maximum vessel 
size; (d) the number of services; and (e) the number of companies that deploy container ships on services from and to a country’s ports. 
64

CHAPTER THREE
Building seamless connectivity
Meanwhile, to address the issue of insufficient 
air passengers and the volume of air cargo. 
services, countries can achieve economies of 
Between November 2010 and November 
scale through collective shipping  arrangements. 
2011, for example, international passenger 
This has been piloted in the Pacific with the 
traffic on Asia-Pacific airlines increased by 4 
establishment of the Micronesian Shipping 
per cent to 15.7 million.10  Much of this reflects 
Commission, which aims at improving regu-
strong intraregional traffic, which between 
lations and encouraging competition of 
1982 and 2009 rose on average by 5.1 per cent 
shipping services in the Marshall Islands, the 
annually to 101.7 million passengers.11  For 
Federated States of Micronesia and Palau. In 
example, passenger traffic increased by 8 per 
2010, Kiribati, Marshall Islands, Nauru, and 
cent per annum or more between 2005 and 
Tuvalu  launched a similar arrangement called 
2009 in regional routes, such as Singapore-
the Central Pacific Shipping Commission. 
Jakarta, Hong Kong-Seoul or Singapore-Kuala 
While these initiatives are still relatively 
Lumpur.
new, there is scope to improve connectivity, 
particularly for small island developing 
Air freight has also grown substantially, 
economies through practical and collective 
especially from China, Viet Nam, Malaysia and 
approaches.
the Russian Federation. Freight, however, has 
been more sensitive than passenger traffic 
Air transport
to the global economic slowdown: between 
November 2010 and November 2011 demand 
Despite the global economic downturn, there 
per freight ton kilometre declined by 6.5 per 
have been increases both in the number of 
cent.12 
TABLE TITLE
III.1. 
Liner shipping connectivity index and container traffic for selected countries
UNCTAD liner index
Container traffic
Growth rate 
Growth rate 
2006-2011 
2006-2010 
2006
2011
(per cent)
2006
2010
(per cent)
Bangladesh
 5.3
 8.2
 9.0
 902
1 350
 10.6
Cambodia
 2.9
 5.4
 12.8
..
 224
..
China
 113.1
 152.1
 6.1
84 811
128 544
 11.0
Fiji
 7.2
 9.2
 5.0
..
..
..
Hong Kong, China
 99.3
 115.3
 3.0
23 539
23 532
 0.0
India
 42.9
 41.5
- 0.7
6 141
8 942
 9.8
Indonesia
 25.8
 25.9
 0.1
4 316
8 960
 20.0
Iran (Islamic Republic of)
 17.4
 30.3
 11.7
1 529
2 592
 14.1
Japan
 64.5
 67.8
 1.0
18 470
..
Malaysia
 69.2
 91.0
 5.6
13 419
17 976
 7.6
Maldives
 3.9
 1.6
- 16.1
..
..
..
Myanmar
 2.5
 3.2
 4.9
..
 166
..
New Zealand
 20.7
 18.5
- 2.2
1 807
..
..
Pakistan
 21.8
 30.5
 7.0
1 777
2 151
 4.9
Papua New Guinea
 4.7
 8.8
 13.6
..
 268
..
Philippines
 16.5
 18.6
 2.4
3 676
5 048
 8.3
Republic of Korea
 71.9
 92.0
 5.1
15 514
18 488
 4.5
Russian Federation
 12.8
 20.6
 10.0
2 266
3 091
 8.1
Samoa
 5.1
 4.6
- 2.2
..
..
..
Singapore
 86.1
 105.0
 4.1
24 792
29 178
 4.2
Sri Lanka
 37.3
 41.1
 2.0
3 079
4 000
 6.8
Thailand
 33.9
 36.7
 1.6
5 574
6 648
 4.5
Turkey
 27.1
 39.4
 7.8
3 683
5 508
 10.6
Viet Nam
 15.1
 49.7
 26.8
3 000
5 474
 16.2
Source: ESCAP based on UNCTAD, Review of Maritime Transport (Geneva, 2009, 2010a and 2011a), and Containerisation International Yearbook 2011 
(London, 2011).
Note:  Figures for 2010 container traffic are preliminary estimates.
65

The increase in passenger and cargo transported 
per capita air travel is still very low, so any 
by air is partly due to the improvement of air 
improvement in connectivity that reduces the 
transport connectivity in the region. During 
time and cost for air travel could stimulate a 
the past decade, more low-cost carriers have 
considerable increase. But while investment 
entered the market, flight frequencies have 
in airports is important, governments should 
increased, and countries have invested in 
also consider the transport infrastructure 
new and existing airports. Most countries are 
needed to link them to their production and 
now linked, either directly or through hubs, 
population centres by developing their land-
and have taken progressive steps towards 
based transport networks.
developing air service agreements and li-
beralizing their air transport markets. The 
Land transport
most notable example from the region is the 
ASEAN Multilateral Agreement on the Full 
Maritime shipping has historically been the 
Liberalisation of Air Freight Services, adopted 
main mode of transport in international 
in Manila on 20 May 2009. This Agreement is 
trade due to its ability to transport large 
one of the components of the Roadmap for 
volumes at low cost per unit of freight.  
Integration of Air Travel Sector and the Action 
As a result, land transport development 
Plan for ASEAN Air Transport Integration and 
patterns have tended to lead to major urban 
Liberalisation 2005-2015, adopted at the 
or trading centres in coastal areas. Thus, 
intercountry land transport linkages are 
Tenth Transport Ministers Meeting in Phnom 
particularly underdeveloped in Asia and the 
Penh in 2004. 
Pacific region. In recent decades, however, 
It is clear that increasing connectivity boosts 
governments across the region have made 
traffic: one study suggests that improvements 
considerable efforts to extend national road 
in air connectivity have resulted in a 22 per 
and railway systems and in some cases, inland 
waterways, both within their countries and by 
cent increase in global traffic.13  Nevertheless,  
connecting to their neighbours. 
measuring connectivity, even in a well-
regulated industry such as aviation, is still 
Much of this investment has been directed 
challenging. One index of air connectivity 
into the road sector. Governments have 
suggests that the world’s most connected 
invested in major national roads, as well 
countries in 2007 were the United States 
as rural road networks.17 Some major rural 
of America and Canada, while the most 
road development initiatives have been 
connected Asian countries were China, Japan, 
implemented in, for example, Bangladesh, 
Singapore, and the Republic of Korea.14  But 
China, India and Sri Lanka. In addition, 
this index ignores connections through hubs. 
the Intergovernmental Agreement on the 
Even the United States, for example, has direct 
Asian Highway Network, adopted under the 
air links with only 101 out of 210 possible 
auspices of ESCAP on 18 November 2003, 
countries. A more useful indicator may be 
established technical specifications for the 
the index developed by the International Air 
regional road network.  The Asian Highway 
Transport Association (IATA), which is based 
Network now extends through 32 member 
on flight frequency, seats per flight, number 
States and comprises 142,000 km of highways 
of destinations and a weighting factor to 
(figure III.2).18 Currently, about 32 per cent of 
measure the importance of each airport. 15
the network is classified as Primary and Class I 
standards, the two highest categories of road 
Air traffic in Asia and the Pacific is poised to 
class.
continue to grow strongly. For the period 
2009-2020, the International Civil Aviation 
However, there are still 11,500 km of Asian 
Organization estimates that passenger aircraft 
Highway routes that need to be upgraded 
movement will increase annually by 5.6 per 
to meet the minimum standards. Although 
cent, while between 2009 and 2014, passenger 
the network does not have “missing links”, 
traffic on many intraregional routes is 
the poor quality of some road segments is a 
projected to increase annually by 6 to 7 per 
deterrent for international transport because it 
cent.16 For many countries in the region, 
increases transport time and operating costs for 
66

CHAPTER THREE
Building seamless connectivity
vehicles. Countries are also struggling to maintain 
Agreement on the Trans-Asian Railway 
their Asian Highway routes due to limited 
Network, which entered into force in 2009,19  
finances and institutional capacity. Furthermore, 
has raised the profile of the region’s railways 
as in the case of other infrastructure networks, 
and is encouraging governments and financ- 
it is often difficult to fund cross-border 
ing institutions to increase investment in the 
projects unless such projects are part of a 
sector.  Other subregional and regional 
broader integration strategy, such as the 
initiatives have also been catalytic in improv- 
Almaty-Bishkek Regional Road Rehabilitation 
ing railway network connectivity. For example, 
project funded by ADB under the Central 
the Master Plan on ASEAN Connectivity 
Asia Regional Economic Cooperation (CAREC) 
launched in 2010 has renewed interest in the  
programme, or more recently the Northern 
Singapore-Kunming Rail Link (SKRL) Project. 
Economic Corridor of the Greater Mekong 
As part of this project, the towns of Thanaleng 
Subregion. This underlines the critical role 
in the Lao People’s Democratic Republic and 
played by regional cooperative frameworks, 
Nong Khai in the north of Thailand were 
such as the Intergovernmental Agreement 
linked by rail, providing the landlocked 
on the Asian Highway Network, as well as  
country easier access to the maritime ports of 
the many subregional initiatives promoted 
Thailand.
by subregional organizations and multilateral 
financing institutions.
However, railways face the challenge of 
missing links, which prevent the network from 
The situation is similar for railways. Some 
functioning as a continuous system (table III.2 
countries are expanding and improving their 
and figure III.3).  According to ESCAP estimates, 
networks through the construction of new 
these constitute about 10,500 km of rail track, 
tracks, double tracking or electric signalling, 
mostly located in the ASEAN subregion. While 
but the region as a whole has yet to realize 
these links can be filled by transshipments to 
its rail potential. The Intergovernmental 
trucks, shippers are discouraged from using 
FIGURE TITLE
III.2. 
Asian Highway network
ASIAN HIGHWAY ROUTE  MAP
The designations employed and the presentation of material on this map
do not imply the expressing of any opinion whatsoever on the part of the
Secretariat of the United Nations concerning the legal status of any country,
territory, city or area or of its authorities, or concerning the delimitation of its
Torpynovka
Vyborg
frontiers or boundaries.
St. Petersburg
RUSSIAN FEDERATION
Dotted line represents approximately the Line of Control in Jammu and
AH8
Kashmir agreed upon by India and Pakistan. The final status of Jammu and
Yekaterinburg
Moscow
Kashmir has not been agreed upon by the parties.
AH7
AH6
AH6
AH6
AH6
Petropavlovsk Omsk
AH60
AH6
AH6
Chelyabinsk
R.F
Krasnoe
Isilkul
AH4
Novosibirsk
Troitsk
Cherlak
AH6
Kaerak
AH62
AH8
Samara
AH63
AH7
AH64 Pnirtyshskoe
Barnaul
Tambov
AH30
AH30
AH7
Shiderty AH64 Pavlodar
AH64
Ulan-Ude
Kurlin
AH6
AH61 Ozinki
AH4
AH61
Irkutsk
Ural'sk
Arkalyk AH62
AH64
AH60
Chita
Veseloyarskyj
Krupets
Voronezh
Borysoglebsk Kamenka
AH6
Zhaisan AH61
AH8
Astana AH7
AH67
Semipalatinsk
Tashanta
AH3
Belogorsk
AH63
Kyahta
Aktobe
AH60
KAZAKHSTAN
Karaganda
Ulaanbaishint
Altanbulag
Zabaykalsk
Volgograd
AH4
Heihe Blagoveshchensk
AH70
AH67
AH3
AH30
Manzhouli
AH31
Donetsk
AH61
AH8
AH7
AH6
Atyrau
Zhezkazgan
Khabarovsk
Taskesken
Hovd
AH32
Bakhty
Ulaanbaatar
AH32
Arshan
AH70
AH63
Aralsk
AH62
UKRAINE
Qiqihar
Uliastay
Tongjiang
AH67
Sumber
Astrakhan
Baketu
Nalayh
Kotyaevka
Ucharal
Takeshkan
Ondorhaan
AH30
Beyneu
AH60
AH33
AH68 Alashankou
Yarantai
AH3
AH32
AH63
Burubaital
AH60
AH5
Kyzylorda
MONGOLIA
Harbin
AH5
Urumqi
ROMANIA
Sayanshand
AH7
Jinghe
AH6
Kuitun
AH82
Aktau
AH61
AH5
AH31
Leselidze
AH61 AH5
Suifenhe
BULGARIA
Horgos
Merke
Almaty
Zamin-uud Eranhot
AH4
AH32
Tulufan
Changchun
AH6
Ussuriysk
GEORGIA AH8
UZBEKISTAN
Poti
AH5
Bekdash
Shymkent
AH5
Bishkek
AH5
AH1
AH5
AH70
AH63
AH5
Quanhe
Istanbul Gerede
Merzifon
Tbilisi
Batumi
AH31
Vladivostok & Nahodka
AH5
KYRGYZSTAN
Kapikule
AH5
AH7
AH5
Tashkent
Shenyang
Sonbong
AH1
AH85
AH86
AH82
Baku
AH61
AH3
AH6
Osh
AH1
AH1
AH5
ARMENIA
Turkemenbashi
Bukhara
AH5
AH7
AH65
Turgat
1
DEMOCRATIC
AH81
AH7
AZERBAIJAN
Alat
AH63
Ankara
Refahiye
Yerevan
Yi'erkeshitan
AH65
AH1
Dandong
TURKMENISTAN
AH87
PEOPLE'S REPUBLIC OF 
AH5
Kashi
AH8
Serdar
Beijing
Farap
TAJIKISTAN AH4
AH31
Izmir
TURKEY
OF KOREA
AH84
AH1
Ashgabat AH5
AH62 AH62
Dalian
AH6
AH70
Tejen
Dushanbe AH66
Tanggu
AH6
Mary
CHINA
Pyongyang AH1
AH84 Toprakkale
AH77
AH1
Termez
AH7
Icel
Qazvin
Honqiraf
AH84
AH1
AH78 Mashhad
Shijiazhuang
AH76
Chinese
Lanzhou
Seoul
REPUBLIC OF
JAPAN
Iskenderun
Saveh
Shabzevar
AH75
AH42
AH7
Polekhumri
AH4
Khosravi
Mazar-i-Sharif
Line
Golmud
AH2
Tehran
AH1
AH5
Qom AH70
KOREA
AH78
Jammu
Xining
AH1
AH1
Tokyo
AH2
AH77
Kabul
Salafchegan
AH1
and
Indian
Herat
AH1
AH75
AH34
AH1
Kashmir
Line
Xi'an
Zhengzhou
Busan
ISLAMIC Esfahan
1
AH34
AFGHANISTAN Islamabad
Lianyungang
AH1
1
AH5
REPUBLIC OF IRAN
Xinyang
Fukuoka
AH8
AH72
Kandahar
Attari
AH5
Yazd
Dilaram
AH7
Lahore
AH1
Takeshkan
Indian
AH71
AH51
Line
AH1
Nanjing
Bandar Emam
Kerman
Dashtak
Quetta
AH2
Shanghai
Anar
AH70
Hangzhou
AH2
PAKISTAN
NEPAL
Bushehr
Lhasa
Zahedan AH2
AH2
AH2
AH2
AH42
Chinese
AH3
AH75
AH1
New Delhi
Zhangmu
Changsha
Line
AH7
BHUTAN
Bandar Abbas
Rohri
Narayanghat
Kathmandu
Xianglan
AH14
Pathlaiya
AH2
Thimphu
Nanchang
Kunming
AH4
Agra AH43
AH48
RUSSIAN FEDERATION
AH42
Raxual Birganj
Siliguri
Dispur
Kanpur
Phulbari
Jaigaon AH1
AH1
AH3
Ruili
AH1
Leselidze
Hasavjurt
Hyderabad
Gwalior
AH2
AH1
AH14
Chabahar
Muse
Karachi
Myanmar
AH3
AH82
Mahachkala
AH41
Imphal
Barhi
Kunming
BANGLADESH
Nanning
AH43
1
AH1
AH14
Katchpur
Tamu
Ruili
Muse
Hekou
Sukhumi
Larsi
AH47
AH3
Dhaka
Mandalay AH14
Daluo
Lao Cai
Kolkata AH1
AH41
AH1
Jinghong
AH14
AH14
Hekou
Nanning Guangzhou
AH3
AH1
Huu Nghi
Youyiguan
Poti
GEORGIA
AH5
AH46
AH46
AH45
Jinghong
Lao Cai AH14
AH81
Dhule
Mandalay
Mongla
Mohan
AH1
Mongla
AH1
Ferry to Bulgaria, 
Khashuri
AH5 Senaki
Nagpur
Shenzhen
Kharagpur
Youyiguan
AH1
Boten
AH13
AH5
AH2
Teknaf
AH3
AH14
AH2Kyaing Tong
Nateuy
Hanoi AH14
Romania, Ukraine
Meiktila
AH82
Mtskheta
AH47
Hanoi
Tachilek
Qudomxai
AH3
Hai Phong
Batumi
Kazmalyarskiy
INDIA
AH1
Tbilisi
Samur
Meiktila
Mae Sai
Houayxay
Hoa Binh
Sarpi
Akhaltsikhe
Naypyitaw
LAO PEOPLE'SAH1
Vale
Chang Khong
AH1
AH82
AH12
Sarp
Red Bridge
Mumbai
DEMOCRATIC
Thane
Sadakhlo
AH43
AH15
AH45
MYANMAR
Vinh
AH1
Chiang Rai Huai
Muang Ngeon
Viet Nam
Visakhapatnam
REPUBLIC
AH1
AH82 Bagratashen
AH8
Payagyi
Kazakh
Vientiane
Laoag
Kon
Lao P.D.R.
Naypyitaw
Vinh
Uzungala
AZERBAIJAN
AH1
VIET NAM
Ferry to Kazakhstan
Yangon
Pitsanulok AH15
AH11 Keoneua
AH5
Paravakar
AH2
Vientiane
AH5
AH1
Seno
AH81
Cau Treo
AH83
Hyderabad
Trabzon
Tak
Dong Ha
AH16
AH16
Ban Lao
Akurik
Gumri Vanadjon
AH13
Ganja
Sumgayit
AH47
Vijayawada
AH1AH16
AH26
Nakhon Sawan
AH12
Hoi An
Uttaradit
AH15
AH1
Nakhon
Densavanh
AH86
THAILAND 1
ARMENIA
Nong Khai
Baku
PHILIPPINES
Payagyi
AH1
Thailand
Phanom
Thakhek
Bang Pa-in AH1
Khon Kaen
Udonthani
Dong Ha
AH15
Erzurum
AH5
AH1
Tak
Thaton
AH16
Sino
Lao Bao
AH1
Horasan Ashtarak
Yer
AH81
evan
Gazi Mammed
Bangalore AH45 Chennai
AH19
Bangkok
Kabin Buri
AH1
Alat
Manila
AH12
AH16
AH16
AH1
Mae Sot
Yangon
AH1
Phitsanulok
Mukdahan
AH1
Krishnagiri
Eraskh
Ferry to Turkmenistan
AH19
CAMBODIA
Askale
AH1
Da Nang
AH82
Myawadi
AH81
AH43
AH1
AH1
Matnog
Khon Kaen
1
Hoi An
Sadarak
Goradiz
Nakhon
Nakhon
AH12
Gurbulak
Bilasuvar
AH2
1
AH26
Savannakhet
AH81
Phnom
Dogubayazit
Goris
AH1
Sawan
AH1 Ratchasima
Pakse
Bazargan
Penh
Allen
1
TURKEY
AH1
AH1
Moc Bai
Tacloban
Nakhchivan
AH12
Madurai
Hin Kong
AH1
AH84
Julfa
Talaimannar
Sihanoukville
Vung Tau
AH19
Aghband
Ho Chi Minh
Cebu
Lioan
Bang Pa-in
AH1 Kabin Buri
Veunkham
AH81 Jolfa
Agarak
AH8
Dhanushkodi AH43
Trincomalee
Sungao
Eyvoghli
Bangkok AH19
Trapeangkreal
Nour Douz Mengri
PoipetCambodia AH1StungTreng
AH1
Astara
AH44
Cagayan de Oro
Bitlis
Colombo
SRI LANKA
Laem
AH1
1
Tabriz
AH43
Sri Jayawardhanapura-Kotte
Hat Yai
ISLAMIC REPUBLIC 
AH18
Zamboanga
AH26
Davao
Chabang
Kratie
Matara
Banda Aceh AH2
BRUNEI DARUSSALAM
OF IRAN
Aranyaprathet
Phnom Penh
MALAYSIA
Bandar Seri
1
AH1
AH1
Male
AH2
Bien Hoa
Medan
Begawan
General Santos
Bavet
AH25
Kuala
MALDIVES
Lumpur
Chumphon
Sihanoukville
Moc Bai
Ho Chi Minh
Serembang
MALAYSIA
Legend
Vung Tau
AH2
Johor Bahru
Dumai
Singapore
Borneo
SINGAPORE
INDONESIA
Asian Highway Route
AH25
Kalimantan
Jambi
Potential Asian Highway Route 
Palembang
Ferry Link
INDONESIA
Jakarta
Bakauheni
Merak
Cikampek
PAPUA
Surabaya
Bandung
Capital City
Semarang
NEW GUINEA
AH2
AH2
UNITED NATIONS
Denpasar
Dili
2011
Port Moresby
TIMOR-LESTE
Source: ESCAP.
67

TABLE TITLE
III.2. 
Missing links in the Trans-Asian Railway network, end 2011
Estimated cost (millions of 
Link
Countries concerned
Distance (km)
US dollars)
Central Asia and the Caucasus region, including the Islamic Republic of Iran and Turkey
Gagarin - Meghri
Armenia – Islamic Republic of Iran
469.6
2 000.0
Tatvan – Van
Turkey
240.0
..
Islamic Republic of Iran
370.0
969.0
Qazvin - Rasht - Anzali - Astara
Azerbaijan
8.2
12.4
Total
378.2
981.4
Turkey
76.0
..
Kars - Akhalkalaki
Georgia
29.0
..
Total
105.0
420.0
Kyrgyzstan
270.0
2 000.0
Uzgen - Arpa - Torugart - Kashi
China
..
..
Islamic Republic of Iran – Iraq
566.0
Arak - Khosravi - Khaneghein
820.0
 (up to border)
Islamic Republic of Iran
77.0
78.0
Afghanistan
114 .0
75.0
Sangan - Herat
(61.0 + 53.0)
 (for 61.0km)
            Total
191.0
153.0
China/North/North-East Asia
Lao People’s Democratic Republic
570.0
1 000.0
Thannaleng - Kunming
China
599.0
2 980.0
total
1 169.0
3 980.0
Myanmar
142.0
480.0
Lashio - Dali
China
350.0
2 162.0
Total
492.0
2 642.0
Thailand
326.0
..
Myanmar
195.0
..
Denchai - Tachilek - Jinghong
China
141.0
..
Total
589.0
2 138.0
Nariin Sukhait - Numrug, with 
links to Chaibalsan and border 

Mongolia
2484.0
..
of China
South-East Asia
Cambodia
48.0
80.0
Sisophon - Aranyaprathet
Thailand
6.0
0.5
Total
54.0
80.5
Cambodia
257.0
480
Bat Deng - Trapeang Se / Loc 
Viet Nam
129.0
949.0
Ninh - Hanoi
Total
385.0
1 429.0
Lao People’s Democratic Republic
450.0
2 342.0
Vientiane - Mu Gia - Vung An
Viet Nam
119.0
143.0
Total
569.0
2 485.0
Thailand
283.0
908.0
Bua Yai - Savannakhet
Lao People’s Democratic Republic
4.0
6.3
Total
287.0
914.0
Thailand
90.0
288.0
Ubonratchatani - Pakse - 
Lao People’s Democratic Republic
415.0
710.0
Savannakhet - Devsavanh - 
Viet Nam
84.0
226.0
Dong Ha
Total
589.0
1 224.0
Thailand
153.0
491.0
Namtok - Thanpyuzayat
Myanmar
110.0
246.0
Total
263.0
737.0
South Asia
Dalbandin - Gwadar
Pakistan
515.0
1 250.0
Dohazari - Gundum
Bangladesh
129.0
300.0
Myanmar
127.0
98.0
Kalay - Jiribam
India
219.0
649.0
Total
346.0
747.0
Source: ESCAP.
Note:  ..  indicates that data are not available.
68

CHAPTER THREE
Building seamless connectivity
rail because of the longer transit time and 
Cross-border and transit transpor t 
higher costs. In addition, interoperability 
facilitation
across borders remains a problem. 
Due to the increase in intraregional trade 
Given the expected growth in intraregional 
during the last two decades, countries have 
trade, as well as heightened awareness 
opened more border crossings and domestic 
about the transport sector’s contribution to 
routes for international transport, and are 
climate change, the railways could capture a 
using bilateral and multilateral agreements 
greater proportion of intraregional transport, 
on transport facilitation to improve the 
particularly for freight. But there is a need 
conditions for international land transport. 
to demonstrate this potential, for example, 
Ambitious initiatives include the customs 
through demonstration runs of container 
union among Belarus, Kazakhstan and the 
block trains. The Economic Cooperation 
Russian Federation, joint customs controls 
Organization (ECO) has been particularly 
between Georgia and Turkey and the 
active in this area, starting with demonstration 
modernization of border gates in Turkey. To 
runs between Istanbul and Almaty in 2002, 
deal with challenges of coordination among 
followed by Islamabad and Istanbul via Tehran 
different agencies dealing with transport 
in 2009.  
facilitation, many countries have set up 
Countries can also increase rail connectivity 
national coordination mechanisms.
by developing more inland container depots 
and dry ports with rail connections. The 
Nevertheless, cross-border and transit transport 
Navoi inland container depot in Uzbekistan, 
is still hampered by many non-physical barriers 
for example, now serves as a subregional 
that lead to excessive delays, high costs and 
air hub with rail links to Central Asia and 
uncertainties. These are multiple technical 
Afghanistan. Similarly, Nepal has developed 
standards, inconsistent and complex 
an inland container depot at Birgunj, which is 
border-crossing procedures and excessive 
connected to the vast Indian railway network. 
documentation. In addition, goods are often 
inspected on both sides of the borders 
by different authorities, and sometimes 
FIGURE TITLE
III.3. 
Trans-Asian Railway network
 TRANS-ASIAN RAILWAY NETWORK
Buslovskaya
St. Petersburg
RUSSIAN FEDERATION
Yekaterinburg
Moscow
Kotelnich
Omsk
Tayshet
Petropavlovsk
Novosibirsk
R. F.
Krasnoe
Syzemka
Tobol
Ozinki
Chita
Irkutsk
Lokot
Astana
Uralsk
Ulan-Ude
Karimskaya
Naushki
Kandagach
Volgograd
Sukhbaatar
Zabaykalsk
KAZAKHSTAN
Likhaya
Ereen tsav
Manzhouli
Makat
Choibalsan
Khabarovsk
Rostov
  Ulaanbaatar
Mointy
Aktogai
Astrakhan
Ganushkino
Khuut
Numrug
Kavkaz
Beyneu
MONGOLIA
Olya
Krasnodar
Dostyk
Alataw Pass
Bichigt
Novorossiisk
Urumqi
Harbin
Sainshand
Veseloe
Aktau
Tavantolgoi
Nariin Sukhait
Grodekovo
Lugovaya
Turpan
Zamyn Uud
Erenhot
Arys
Shiveekhuren
Changchun
Suifenhe
Ussurijsk
Poti GEORGIA
Bishkek
Vostochny
Kapikule
Samur
UZBEKISTAN
Khasan
Gashuun Sukhait
Istanbul
Tbilisi
Yalama
Tumangang
Batumi
Dashowuz
Nakhodka
Samsun
KYRGYZSTAN
Dogukapi
Rajin
Dogukapi
AZERBAIJAN
Tashkent
Vladivostok
Eskisehir
ARMENIA
Turkmenbashy
Shenyang
Chongjin
Yerevan
Baku
Bukhara
Osh
Ankara
Cetinkaya
TURKMENISTAN
Dandong
DEMOCRATIC
Yangi Bazar
TURKEY
Kapikoy
Kashi
Jolfa
Astara
Dushanbe
Beijing
TAJIKISTAN
Pyongyang PEOPLE'S REPUBLIC
Izmir
Malatya Tatvan Van
Turkmenabad
Razi
Ashgabat
Yavan
Kulyab
OF KOREA
Bandar-e-Anzali
Tianjin
Kurgan
Dalian
Bandar-e-
Mersin
Toprakkale
Amirabad
Hairaton Tube
Lanzhou
Tehran
Mashhad Sarakhs
Seoul
Iskenderun
Qazvin
Kashmar
Chinese Line
CHINA
Jinan
REPUBLIC OF
Garmsar
Fariman
Qingdao
Daejeon
KOREA
JAPAN
Qom
Torbat
Jammu
Baoji
Tokyo
Khosravi
Sangan
ISLAMIC
Heidarieh
 Islamabad
Herat
Kabul
     and
Indian Line
Iksan
Khaneghein
Arak
Lianyungang
Busan
REPUBLIC OF IRAN
Peshawar
 Kashmir
AFGHANISTAN
Zhengzhou
Badrud
Xian
Mokpo Gwangyang
Esfahan
Chadormalu
Ardakan
Wagah
Ahvaz
Bafq
Chaman
Attari
Nanjing
 Bandar Emam
Khorramshahr
Quetta
Indian Line
Khanewal
Shanghai
Zahedan Koh-i-Taftan
Spezand
Multan
Chinese Line
Brahma Mandi
Mirjaveh
Dalbandin
PAKISTAN
Lodhran
NEPAL
New Delhi
Kathmandu
BHUTAN
Changsha
Bandar-e-Abbas
Rohri
Mathura
Raxaul Birgunj
Hengyang
T
Kakarvitta himphu
Khokropar
Kanpur
Patna Birol
Kachang Dali
Gwadar
Karachi
Hyderabad
Mughalsarai
Kunming
Shahbazpur Mahisasan
BANGLADESH Jiribam
Ruili
Baoshang
Sitarampur
Darsana
Tamu
Yuxi
Dhaka
Bhopal
Kalay
Lashio
Guangzhou
Kolkata
Nanning
Chittagong
  Lao Cai QuanTrieu
Shenzhen
Nagpur
Mandalay
Dong Dang
Hong Kong, China
Dong Dang
Wardha
MYANMAR
Boten
Hanoi
Halong
LAO PEOPLE'S
Hai Phong
INDIA
Chiang Rai DEMOCRATIC
Naypyitaw
VIET NAM
Mumbai
REPUBLIC
Chiang Mai VientianeNong Khai
Yangon
Mae Sod
Suvannakhet
Vijayawada
THAILAND
Nakhonsawan
PHILIPPINES
Thanphyuzayat
Mukdahan
Nakhon
Bangkok
Chennai
Namtok
ratchasima
Bangalore
Poipet
Manila
Lamchabang
Jolarpettai
Port
CAMBODIA
Sattahip Phnom
Port
Penh
Madurai Rameswaram
Sihanouk Ville
Ho Chi Minh City
1,676 mm
Talaimannar
Tuticorin
Trincomalee
1,520 mm
Colombo
SRI LANKA
Hat Yai
Sri Jayewardenepura 
Kataragama
Padang Besar
Sungai Kolok
Kotte
Matara
1,435 mm
Track Gauges
Banda Aceh
Butterworth
Tumpat
Belawan
Ipoh MALAYSIA
BRUNEI DARUSSALAM
Male
Bandar Seri
1,067 mm
Begawan
MALDIVES
Medan
Kuala
Port
Lumpur
Klang
MALAYSIA
1,000 mm
Rantauprapat
Borneo
Johor Bahru
Singapore
SINGAPORE
Naras
1,000/1,435 mm
INDONESIA
Muaro
Kalimantan
TAR LINK - PLANNED/UNDER CONSTRUCTION
Teluk Bayur
Kertapati
POTENTIAL TAR LINK
Lubuklinggau
INDONESIA
POTENTIAL TAR LINK TO BE CONSIDERED
Panjang
PAPUA NEW GUINEA
Jakarta
Merak
Surabaya
BREAK-OF-GAUGE
Bandung
Banyuangi
FERRY CROSSING
UNITED NATIONS
Dili
TIMOR-LESTE
2011
Source: ESCAP.
69

TABLE TITLE
III.3. 
Status of accession of ESCAP regional members to the seven international conventions related to land transport 
facilitation listed in Commission resolution 48/11, as of 14 February 2012
Customs 
Customs 
Convention 
Convention 
Convention 
International 
on the 
Convention 
on the 
on the 
Customs 
Convention 
Contract 
Convention 
on Road 
International 
Temporary 
Convention 
on the 
for the 
Country or area
on Road 
Signs and 
Transport of 
Importation of 
on 
Harmonization 
International 
Traffic (1968)
Signals 
Goods under 
Commercial 
Containers 
of Frontier 
Carriage of 
(1968)
Cover of 
Road 
(1972)
Controls of 
Goods by 
TIR Carnets 
Vehicles 
Goods (1982)
Road (CMR) 
(1975)
(1956)
(1956)
Group I: Mainland Asia
Afghanistan
x
x
Armenia
θ
θ
θ
θ
θ
Azerbaijan
θ
θ
θ
θ
θ
θ
θ
Bangladesh
Bhutan
Cambodia
x
China
x
Democratic People's      
Republic of Korea

Georgia
θ
θ
θ
θ
θ
θ
India
x
Iran (Islamic Republic of)
x
x
x
θ
θ
Kazakhstan
θ
θ
θ
θ
θ
θ
Kyrgyzstan
θ
θ
θ
θ
θ
θ
θ
Lao People's 
θ
Democratic  Republic
Malaysia
Mongolia
θ
θ
θ
θ
θ
Myanmar
Nepal
Pakistan
x
x
Republic of Koreaa
S
S
x
x
Russian Federation
x
x
x
x
x
x
Singapore
x
Tajikistan
θ
θ
θ
θ
θ
Thailand
 S
S
Turkey
x
θ
x
θ
θ
Turkmenistan
θ
θ
θ
θ
Uzbekistan
θ
θ
θ
θ
θ
θ
θ
Viet Nam
Group II: Island countries
Brunei Darussalam
Indonesia
  S 
S
x
x
Japan
Maldives
Philippines
x
x
Sri Lanka
Sources: United Nations Treaty Collection. Available from http://treaties.un.org/Pages/Treaties.aspx?id=11&subid=A&lang=en; and Summary list 
of International UNECE Transport Agreements and Conventions. Available from http://www.unece.org/trans/conventn/legalinst.html.
Notes: x = acceded before adoption of resolution 48/11, θ = acceded after adoption of resolution 48/11, S = signature
a The Republic of Korea acceded to the Convention on Road Traffic (1949), while it remains as a signatory of the new version of the  convention 
(1968).
70

CHAPTER THREE
Building seamless connectivity
even while in transit, rather than being 
urging member countries to accede to seven  
inspected either at loading or unloading 
international conventions related to land 
points. Experience has shown that unilateral 
transport facilitation (table III.3).20  To ensure 
measures have had a limited impact on 
that these efforts converge over the long 
transport facilitation, since gains on one side 
run, the secretariat has prepared a Regional 
of the border may be lost on the other – thus, 
Strategic Framework for Facilitation of 
cooperation is essential.
International Road Transport (box III.1). The 
framework was recently adopted by the 
Landlocked countries, which depend on 
Ministerial Conference on Transport held in 
intercountry land transport for much of 
Bangkok in March 2012. Its adoption by the 
their external trade, could benefit the most 
member States will pave the way for dealing 
from multilateral facilitation; despite being 
with non-physical barriers comprehensively, 
connected to regional networks, they still 
which is of critical importance to enhance 
depend on their transit neighbouring countries 
trade and boost regional integration. 
for their goods to reach sea ports and beyond. 
Dynamic effects of improved regional 
Many organizations have been bringing 
transport connectivity
stakeholders together to remove these 
barriers. ESCAP, for example, through 
Given the high cost of transport infrastructure 
resolution 48/11 adopted in 1992, has been  
development, governments should exercise 
BOX III.1. Regional Strategic Framework for Facilitation of International  
Road Transport
The ESCAP Ministerial Conference on Transport held at Bangkok in March 2012 
adopted the Regional Strategic Framework on Facilitation of International 
Road Transport. It consists of long-term, common targets as well as desirable 
strategies for fundamental elements of international road transport and 
essential facilitation approaches. This could help ensure convergence of efforts 
to facilitate transport by countries by avoiding inconsistencies and possible 
conflicts between different facilitation agreements and measures. 
The framework identifies major challenges to international road transport 
and provides possible solutions for them. It covers road transport permits and 
traffic rights, visas for professional drivers and crew, temporary importation of 
road vehicles, third-party liability insurance, vehicle weights and dimensions, 
and vehicle registration/inspection certificates. It also includes measures to 
mitigate transport delay by promoting international conventions, coordinating 
legal instruments, applying new technologies, developing professional 
training, strengthening national coordination mechanisms, promoting joint 
border controls and economic zones at borders. 
One of the important proposals in the framework is the establishment of a 
regional network of legal and technical experts to help countries upgrade the 
capabilities of their officials and experts, and provide professional support to 
the development of transport facilitation agreements, measures and projects.
Source: ESCAP.
71

a high degree of caution and also think 
tend to be the ones with the highest regional 
strategically about the type of infrastructure 
gross domestic products (RGDPs) per capita. 
they develop. The rationale for having intergovern- 
As explained in the annex, gains and losses 
mental agreements on the Asian Highway and 
are defined as differences in the simulated 
Trans-Asian Railways is to allow countries to 
RGDPs in 2030 between the baseline scenario 
coordinate their infrastructure development, 
and each specific project scenario. Because 
particularly for sections which lead to 
improvements in land routes typically create 
international borders. It is, however, not easy to 
businesses and employment opportunities in 
assess the impact of such projects across more 
the regions where these routes are located, 
than one country.
some redistribution of economic activity and 
population towards these regions is possible, 
Many studies have explored the impacts 
which, in turn, could adversely affect regions 
of changes in trade and transport costs 
farther away from the improved routes. 
on industrial distribution and subnational 
economies. An increasing number of such 
Table III.4 shows that some districts are indeed 
studies use computable general equilibrium 
negatively affected, but their average losses 
(CGE) models to investigate the impact 
compared to the baseline scenario are very 
of various policies to improve transport 
small, of the order of 0.3 to 0.4 per cent. In 
connectivity within and across countries. The 
contrast, the gains of the positively affected 
Institute of Developing Economies (IDE), for 
regions are significantly larger, between 2.2 
example, has developed a CGE model which 
and 2.8 per cent. Interestingly, the positively 
uses data on the Asian Highway to look not 
affected regions have, on average, a lower 
only at the impact of physical infrastructure 
RGDP per capita than the negatively affected 
improvements on economic growth in Asia, 
regions, implying that these projects have 
but also at other factors which affect trade 
positive distributional impacts, a result that 
costs and therefore the choice of mode by 
is confirmed by the negative correlation 
business.  
coefficients between the gains in RGDP and 
the initial RGDPs per capita (no. 4 of table III.4).
To demonstrate this approach, IDE conducted 
simulations on three routes which make up 
The results of simulations using CGE models 
part of the Asian Highway network: 
should be interpreted with caution as they 
depend on the assumptions and parameters 
 
• AH1: Mae Sot (Thailand) – Mandalay 
of the model, but they can, nevertheless, 
(Myanmar) – Dhaka (Bangladesh) – Delhi 
provide a useful input for policy discussions. In 
(India);
principle, the results of the three simulations 
 
• AH1 + AH2 Chiang Rai/Mae Sai (Thailand) 
show that investments in the Asian Highway 
–Mandalay (Myanmar) – North East India – 
can have large net positive gains and 
Dhaka (Bangladesh) - Delhi (India)  – Amritsar 
favourable distributional effects, but that 
(India, near the border of Pakistan);21 
attention should also be given to anticipating 
 
• AH1 + AH14: Kunming (China) – Muse 
and planning for possible negative effects in 
(Myanmar) – Mandalay (Myanmar) – North 
other regions.
East India – Dhaka (Bangladesh) – Delhi 
(India). 
The simulations consider construction and 
Connectivity for energy security
improvements in physical infrastructure, 
Energy resources are distributed unevenly 
the implementation of custom facilitation 
around the region. Asia and the Pacific has 
measures and permitting through traffic in 
major energy exporters such as Australia, 
Myanmar and Bangladesh. Further details of 
Indonesia, Kazakhstan and the Russian 
the model and these simulations are included 
Federation  along with large energy importers 
in the annex. The results are summarized 
such as China, India, Japan and the Republic 
in table III.4. They show that most regions 
of Korea.  Buoyant economic growth in the 
included in the model are unaffected by these 
region has, therefore, been accompanied by 
projects, and that these unaffected regions 
an expansion in energy trade, which between 
72

CHAPTER THREE
Building seamless connectivity
TABLE TITLE
III.4. 
Simulation model of benefits from three Asian Highway routes
AH1
AH1 + AH2
AH1 + AH14
1. Non affected regions
Number of regions
1 065
1 063
950
Average per capita RGDP
2 946
2 966
3 040
2. Negatively affected regions
Number of regions
226
208
230
Average per capita RGDP
987
898
1 219
Average loss (per cent)
-0.3
-0.3
-0.4
3. Positively affected regions
Number of regions
408
428
519
Average per capita RGDP
607
628
848
Average gain (per cent)
2.8
2.6
2.2
4. Correlation between change in RGDP 
-0.099
-0.078
-0.105
and RGDP per capita
Source: ESCAP based on S. Kumagai, “Geographical simulation analysis on the economic impacts of improved regional transport connectivity be-
tween ASEAN and India”, background paper prepared for ESCAP, Bangkok, 2012.
Notes: Regional GDP per capita values are for the year 2005 and expressed in current US dollars. Average losses and gains are based on annual 
values in billions of US dollars of 2005 for the year 2030, the final one of the simulation period. The simulations use local administrative units (“re-
gions”) which differ in size and population from country to country. It should also be noted that the simulations do not take into account the cost 
of the infrastructure projects and only estimate percentage change relative to each other. The simulations only focused on specific sections of the 
Asian Highway.
2000 and 2010 grew by almost 60 per cent 
of a regional agreement setting out consis- 
(figure III.4).22  The total volume of energy 
tent rules for energy trade. There are also 
traded in 2010 – 3,056 million tons of oil 
geopolitical and security considerations that  
equivalent (Mtoe) – represented almost 
discourage investors from exploiting poten- 
54 per cent of the region’s primary energy 
tially profitable opportunities.
consumption and more than a quarter of the 
world’s total primary energy consumption. 
Most energy trade involves the bulk transport 
The largest increase, 126 per cent, was for gas, 
of products, especially by sea and particularly 
followed by coal at 106 per cent and oil at 33 
in the case of liquefied natural gas (LNG). 
per cent.
However, greater economies of scale could 
be derived from enhancing international 
According to ADB, Asia-Pacific energy demand  
physical energy infrastructure, such as cross-
is projected to grow by 2.4 per cent a year 
border energy grids and pipelines.
during the next 20 years with the highest 
growth in East Asia at 4.8 per cent and 
Cross-country energy infrastructure can be 
South Asia at 3.5 per cent.23   Total demand is  
bilateral, as with the Nepal-India bilateral 
expected to reach 7,215 Mtoe by 2030, 
power trade or the Indonesia-Philippines 
compared to 5,380 Mtoe for total supplies, 
pipeline gas trade,  or subregional, as with the 
implying that the region has enormous 
East Siberia-Pacific Ocean oil pipeline or the 
potential for increasing energy trade.
SAARC power grid (see box III.2). The following 
is a brief overview of recent developments on 
Nevertheless, intraregional energy trade faces 
subregional energy infrastructure in Asia and 
a number of obstacles. The most  important 
the Pacific.
ones is the lack of energy supply infrastructure, 
which often prevents countries from accessing 
East and North-East Asia – The East Siberian 
even their own domestic resources.  Address-
and Sakhalin reserves of hydrocarbons in the 
Russian Federation offer opportunities for 
ing this deficit would require vast investment; 
infrastructure development. In that regard, 
according to the International Energy Agency 
the Russian Federation has launched several 
(IEA), between 2010 and 2035, the cumulative 
pipeline projects, including the East Siberia 
requirement could exceed $32 trillion (2009 
Pacific Ocean pipeline, which will connect 
US dollars).   Another impediment is the lack  
73


FIGURE TITLE
III.4. 
Energy trade in the Asia-Pacific region24
Source: ESCAP based on data from EIA online statistical data and BP Statistical Review of World Energy.
Note: Data of electricity trade for year 2010 is not available.
fields in Irkutsk to the Pacific ocean via China 
Ceyhan Export Oil Pipeline, the Baku-Supsa oil 
by pipeline,25  a joint China-Russian Federation 
pipeline, the Baku-Tbilisi-Erzurum gas pipeline 
gas pipeline project, which will connect 
and the Tabriz-Ankara gas pipeline. Proposed 
East-Siberian gas fields with China, and the 
projects include the Nabucco gas pipeline, the 
development of the Russian Sakhalin project, 
Persian gas pipeline and the Trans-Caspian 
which already supplies both oil and gas.26  It 
gas pipeline that will connect Turkmenistan 
is worth to note that important agreements 
with Europe. A planned pipeline will also 
were signed in 2011 to build a gas pipeline 
enable Turkey to send oil from Samsun on 
from the Russian Federation to the Republic 
the Black Sea to the Ceyhan Oil Terminal. In 
of Korea through the Democratic People’s 
addition, Turkey plans to develop a network 
Republic of Korea. The project aims to supply 
of LNG terminals to export gas to European 
12 billion cubic meters of natural gas annually, 
markets.28 
and is expected to cut the price of gas for the 
Republic of Korea by one-third, as compared 
Central Asia has about 14 per cent of the oil 
to the current cost of delivering LNG from 
reserves of Asia and the Pacific as well as 11 
Sakhalin.27  This would be a prime example of 
per cent of the gas reserves and 7 per cent 
international cooperation furthering physical 
of the coal reserves, making the subregion a 
and economic connectivity.
key part of the Asia-Pacific energy landscape. 
The subregion’s five States, as former Soviet 
North and Central Asia – The western part of 
Republics, are interlinked through electricity 
the subregion forms a strategic corridor for 
grids and pipeline systems that lead to the 
the export of Caspian and Arab States oil and 
core consumer, the Russian Federation. 
gas supplies to Europe, with Turkey serving 
Kazakhstan, with almost 3 per cent of the 
as a connecting hub. The main pipeline trade 
world’s oil reserves, currently supplies 
projects in the subregion include the existing 
international oil market: (i) by pipeline to the 
Blue Stream gas pipeline, the Baku-Tbilisi-
74

CHAPTER THREE
Building seamless connectivity
Black Sea ports through the Caspian Pipeline 
Major routes are the CAC pipeline through 
Consortium and the Russian mainland 
Kazakhstan to Russian Federation; the 
pipeline grid, (ii) by barge, and through the 
Korpezhe–Kordkuy pipeline,31 and the Central 
Baku-Ceyhan pipeline, to the Mediterranean, 
Asia-China gas pipeline. Another route will 
(iii) by barge and rail to Batumi (Georgia) and 
be the  East-West pipeline, which will boost 
(iv) by pipeline to China.29  In 2010, Kazakhstan 
westward exports by transporting gas from 
provided 2 per cent of  the foreign crude oil 
the country’s Dauletabad field through the 
supplies sent to China. Kazakhstan also exports 
Russian pipeline system or through the 
gas to the Russian Federation and imports it 
prospective Trans-Caspian pipeline to Turkey. 
from Uzbekistan through the Central Asia – 
Once completed, it will have the capacity to 
transport 30 billion cubic metres of natural 
Center (CAC) gas pipeline system, connecting 
gas per year. Another major new project is the 
Kazakhstan, Turkmenistan, Uzbekistan and 
Central Asia-China gas pipeline which extends 
the Russian Federation.  An agreed expansion 
from Turkmenistan to Xinjiang in north-west 
of the Western branch and a new parallel 
China, and is designed to carry 30 billion 
pipeline will give the system the total capacity 
cubic metres of gas from Turkmenistan and 10 
to carry 78 billion cubic metres of natural gas 
billion cubic metres from Kazakhstan. There 
per year.30 
was also an agreement in 2010 to construct a 
pipeline from Turkmenistan to India through 
Turkmenistan, with the world’s fourth-largest 
Afghanistan and Pakistan.32 
gas reserves, exports to China, the Islamic 
Republic of Iran and the Russian Federation. 
BOX III.2. SAARC Energy Ring
Asia and the Pacific remains characterized by lack of access to modern 
services. South-Asia, in particular, has been an unenviable  symbol of this 
inadequacy. More than 400 million people in the subregion continue to live 
without access to electricity.  With a growing population and strengthening 
economies, energy cooperation among the eight SAARC countries, namely 
Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri 
Lanka, is gaining recognition.
In order to promote cooperation among the SAARC member States, the 
Islamabad Declaration of the Twelfth SAARC Summit, held in January 2004, 
mandated South Asian energy cooperation including, the concept of an energy 
ring, a common regional highway of energy within and across the region 
for the movement of energy (including both commodity and services), 
in a market-based environment that all participants would benefit from. 
The SAARC Energy Ring, endorsed by the member states as a dynamic and 
evolving concept, is perceived to reduce supply disruptions and delivery 
constraints in a sustainable manner.
To facilitate the creation of this energy ring, ministers of the SAARC 
member States  decided recently to finalize the SAARC Intergovernmental 
Framework Agreement (IFA) for Energy Cooperation by June 2012. 
Sources: IEA Electricity Information database, 2011.  Available from www.esds.ac.uk/international/support/
user_guides/iea/iea.asp; SAARC, 2009; and Shahiduzzaman, 2012.
75

In addition, there are good prospects for 
systems in Uzbekistan, Islamic Republic of 
exporting hydroelectricity, particularly from the 
Iran and Turkmenistan. This would al ow 
mountainous eastern regions of  Kyrgyzstan, 
Afghanistan, at least in the short- to medium-
Tajikistan and Uzbekistan to neighbouring 
term, to concentrate on the reconstruction 
countries within and beyond the subregion. 
of its damaged distribution system rather 
The proposed Central Asia Power System 
than trying to attract investment for energy 
project aims to unite the Central Asian 
generation plants.36  Pakistan could also import 
electricity grids.
electricity, especially during the summer, from 
Kyrgyzstan and Tajikistan, and lines could also 
South and South-West Asia  –  Countries in 
be extended to India, which could provide 
this subregion have very different energy 
both countries more opportunities to meet 
endowments. The Islamic Republic of Iran, 
peak demands. Meanwhile, Bhutan and Nepal 
for example, has almost 10 per cent of the 
could sell more electricity to India and start 
world’s oil reserves and within Asia and the 
supplying Pakistan as well.37 Energy systems 
Pacific exports to China and Japan, as well 
optimization and two-way cross-border trade 
as to India to which it supplies 11 per cent of 
may also be cost-effective for Nepal, which 
the country’s oil demand. 33  The country is 
could benefit from exporting its hydropower 
also endowed with 16 per cent of the global 
to India during the high-water season and 
gas which is exported primarily to Armenia, 
importing thermal energy from India during 
Azerbaijan and Turkey. The Islamic Republic 
the dry season. Myanmar has hydroelectric 
of Iran also exports electricity to Afghanistan, 
potential of around 40 million kW of which 
Armenia, Iraq, Pakistan and  Turkey and imports 
only 5 per cent has been developed and some 
electricity from Azerbaijan and Armenia.
of which could be exported to India. Moreover, 
interconnection among Bangladesh, Bhutan 
India’s reserves of oil and gas constitute 
and Nepal through India could also be 
less than 0.7 per cent of the world’s total. At 
feasible, with a possible underwater cable to 
present, over 50 per cent of its energy needs 
Sri Lanka.
are met through abundant coal reserves with 
much of the rest met by importing oil, gas, 
South-East Asia – This subregion is unevenly 
coal and electricity. The subregion’s main 
endowed with energy resources. Brunei 
energy trade corridors will continue to be 
Darussalam, Indonesia, Malaysia, Thailand 
between the Islamic Republic of Iran, and 
and Viet Nam together hold about 5 per cent 
between India and Turkmenistan.
of the Asia-Pacific region’s oil reserves. Their 
production of 120 million tons of oil in 2010 
There are also two long-standing pipeline 
covered around a half of the subregion’s 
projects. One is the Iran-Pakistan-India gas 
demand. The net exporters in the subregion 
pipeline with an ultimate capacity of 55 
are Brunei Darussalam, Timor-Leste and 
billion cubic metres yearly.34  This has been 
Viet Nam while the main net importers are 
delayed several times due to geopolitical 
Indonesia,38 Singapore and Thailand. 
considerations, but in January 2011 the Islamic 
Republic of Iran announced that most of the 
South-East Asia is better endowed with natural 
work on its side had been completed and 
gas. It had  6.7 trillion cubic metres of proven 
Pakistan is planning to finish its part by 2014.35 
reserves in 2010, of which 82 per cent of it was 
Another project is the Turkmenistan-Afghanistan-
in Indonesia and Malaysia. The subregion’s 
Pakistan-India pipeline. This could deliver 33 billion 
gas production is one-third higher than 
cubic metres of gas yearly from Turkmenistan but 
consumption while its  largest net importers 
has been challenged by the continuing unrest in 
are Singapore and Taiwan Province of China. 
Afghanistan and north-west Pakistan.
The main gas export routes for the subregion 
are  LNG deliveries to China, Japan, Kuwait, 
In addition, there could be substantial benefits 
Mexico, the  Republic of Korea and Taiwan 
from greater trade in electricity. Afghanistan, 
Province of China and pipeline deliveries to 
for example, could import hydro-generated 
Malaysia, Singapore and Thailand.
supplies from Tajikistan or from heat-based 
76

CHAPTER THREE
Building seamless connectivity
A major gas trade development project in the 
resolution mechanisms. Commercial factors 
subregion is the Trans-ASEAN Gas Pipeline 
include gas price mechanisms, demand 
Project (TAGP). This project, which aims to link 
stability, competition, commercial viability, 
almost 80 per cent of the subregion’s total 
financing transit rights, third-party access to 
gas reserves, includes the construction of 13 
common gas carriers and tax incentives.39
cross-border pipelines (figure III.5). It faces a  
In 2009, the economies  of the subregion 
series of technical as well as institutional and 
accounted for 3.2 per cent of Asia-Pacific 
commercial challenges. The technical factors 
electricity trade. The Lao People’s Democratic 
include harmonization and standardization 
Republic is the largest exporter of electricity 
of technical matters, gas quality specification, 
while Thailand is the largest importer. The major 
geo-sequestration of CO2, and environmental 
programme promoting the interconnection 
regulation and standards. Institutional factors 
of the power grids in South-East Asia is the 
include law and regulation of cross-border 
ASEAN Power Grid, which has four ongoing 
trade, the title and ownership of the pipelines, 
interconnection projects and an additional 
the harmonization of tax systems and dispute 
FIGURE TITLE
III.5. 
The proposed Trans-ASEAN gas pipeline grid
INDIA
1.  Malaysia to Singapore 
CHINA
(commissioned 1991)
2.  Myanmar (Yadana) to 
Thailand (Ratchaburi) 
(commissioned 1999)
MYANMAR
3.  Myanmar (Yetagun) to 
LAO PEOPLE'S
Thailand (Ratchaburi) 
DEMOCRATIC
(commissioned 2000) 
REPUBLIC
4.  Indonesia (West Natuna) to 
Singapore (commissioned 
2001)
5.  Indonesia (West Natuna) 
THAILAND
PHILIPPINES
to Malaysia (Duyong) 
2
(commissioned 2002)
CAMBODIA
6.  Indonesia (Grissik) to 
3
Singapore (commissioned 
VIET NAM
2003)
7.  Trans Thailand - Malaysia 
(commissioned 2005)
8.  Indonesia (South Sumatra) 
13
to Malaysia
7
9.  Indonesia (Arun) to Malaysia 
11
5
BRUNEI 
10. Indonesia (East Natuna and 
9
MALAYSIA
12 DARUSSALAM
West Natuna) to Malaysia 
(Kerteh) and Singapore
4
1
10
11. Indonesia (East Natuna) to 
MALAYSIA
Thailand (JDA - Erawan)
SINGAPORE
12. Indonesia (East Natuna) 
8
to Malaysia (Sabah) and 
the Philippines (Palawan - 
INDONESIA
Luzon)
6
13. Malaysia - Thailand (JDA) to 
Viet Nam
INDONESIA
Source: ESCAP based on data from ASEAN Centre for Energy. Available from http://aseanenergy.org.
77

11 planned through 2015 (figure III.6). The 
both supply and consumption is dominated 
total investment required is estimated at $5.9 
by Papua New Guinea, which accounts for 
billion.40
60 per cent, and by Fiji for almost all of the 
remaining 40 per cent. Over the period as a 
Australia – The country has the world’s 
whole, average energy consumption for the 
thirteenth-largest gas reserves and exports 
PICTs grew by 3.8 per cent annually, but this 
more than half its production to China, Japan, 
figure drops to only 1.1 per cent if Papua New 
Kuwait, the Republic of Korea, and Taiwan 
Guinea and Fiji are excluded. For the other 
Province of China. It is also one of the world’s 
countries and territories, fossil fuels accounted 
largest exporters of coal, accounting for over 
for around 99 per cent of commercial energy 
28 per cent of the global exports; in 2010, 
use – compared with an average of 45 per 
almost 40 per cent of the value of its coal 
cent for the Asia-Pacific region and about 34 
shipments went to Japan with most of the 
rest going to the Republic of Korea (15 per 
per cent globally.
cent), China (12 per cent), India (10.9 per cent) 
A high proportion of imported petroleum 
and other Asian countries (9.5 per cent).
is used for transport – about 42 per cent 
Pacific  – According to an ADB study, fossil 
in Papua New Guinea, 54 per cent in Fiji, 
fuels accounted for 85 per cent of the total 
and 75 per cent on average for others. The 
energy supply of the Pacific island Countries 
increase in the price of petroleum from 2002 
and Territories (PICTs) during 1990-2006, with 
to early 2008 cost most PICTs about 10 per 
biomass representing about 11 per cent of 
cent of their gross national incomes, with 
the total. However the subregional picture for 
the impacts falling disproportionately on 
FIGURE TITLE
III.6. 
Proposed ASEAN Power grid
Hanoi
MYANMAR
LAO PEOPLE'S
DEMOCRATIC
REPUBLIC
Vientiane
Yangon
VIET NAM
THAILAND
PHILIPPINES
Bangkok
Manila
CAMBODIA
Phnom
Penh
BRUNEI DARUSSALAM
Bandar Seri
MALAYSIA
Begawan
Kuala
Lumpur
MALAYSIA
Singapore
SINGAPORE
INDONESIA
INDONESIA
Jakarta
Legend
PAPUA 
Power Grid
NEW GUINEA
Natural Gas Fields
TIMOR-LESTE
Source: ESCAP based on data from ASEAN Centre for Energy. Available from http://aseanenergy.org.
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CHAPTER THREE
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people with low incomes. Around one-fifth of 
platform for energy cooperation could 
petroleum consumption is used to generate 
support the consolidation of subregional 
electricity. Nevertheless, access is still low in 
efforts  to enhance energy connectivity and 
some countries. The average is 30 per cent, 
security. The Asian and Pacific Energy Forum  
ranging from less than 25 per cent in Papua 
organized by ESCAP (box III.3), which will 
New Guinea, Solomon Islands and Vanuatu, 
meet at the ministerial level in May 2013 
to more than  95 per cent in Cook Islands, 
in Vladivostok, Russian Federation could 
Guam, Nauru, Niue, Northern Mariana Islands, 
provide the basis for institutional cooperation 
Samoa, Tonga, Tokelau and Tuvalu.41
to harmonize policies, share knowledge and 
facilitate investments in physical connectivity. 
In April 2011, energy ministers of Pacific 
island economies endorsed the Framework 
Enhancing physical connectivity infrastructure 
for Action on Energy Security in the Pacific 
across countries is one important objective 
and its associated implementation plan. The 
of regional energy cooperation. As the 
framework promotes a ”whole-of-sector” 
number of pipelines planned or currently 
approach, based on the concept of ”many 
being constructed increases, it may be 
partners – one team”. It offers guidance to 
useful to identify missing infrastructure links 
national efforts to achieve energy security 
and investment needs from a region-wide 
and, in line with the principles of the Pacific 
perspective, taking into account projected 
Plan, also indicates how national plans can be 
increases in the demand for energy within 
complemented by regional services.
the region. In this respect, the modalities 
developed for the previously mentioned 
Towards a regional framework for energy 
intergovernmental agreements on the Asian 
connectivity
Highway and on the Trans-Asian Railway 
networks could provide useful models for the 
Because energy is a critical production input, 
development of an integrated regional power 
and disruptions to either its availability or price 
grid linking multiple demand and supply 
can have serious economic consequences, 
sources or  “Asian Energy Highway” (box III.4).
energy security – understood as both a 
stable supply for importing countries and 
Regional cooperation could also be greatly 
a stable demand for exporting countries – 
beneficial for undertaking longer term multi-
is a fundamental goal. As discussed above, 
lateral projects, such as joint research on energy 
the Asia-Pacific region includes both large 
technologies relevant to the region, or for the 
energy-importing and large energy-exporting 
formation of joint ventures of regional energy 
countries. Therefore, the region’s energy 
companies for joint prospecting and exploration. 
security could be increased by enhancing 
Further, regional cooperation could play an important 
physical connectivity and building institutions 
to promote cooperation between the region’s 
role for the development, commercialization 
energy importers and energy exporters.
and dissemination of energy-efficient techno- 
logies, such as solar panels, wind turbines and other 
While no region-wide institutions currently 
technologies that take advantage of renewable 
exist to promote connectivity, a number of 
resources. Such an approach will be increasingly 
subregional initiatives could serve as building 
needed, given the region’s economic dynamism, 
blocks for a regional energy cooperation 
the imperative of making energy available to all 
framework. A subregion that has built strong 
and the expectation that the price of crude oil will 
institutions over the years for cross-country energy 
continue to increase over the next two decades.42 
cooperation is South-East Asia. Because, as 
mentioned above, this subregion includes 
In order to promote energy cooperation 
both net exporters and net importers of 
and trade in the region, it is also necessary 
energy, cooperation among them has been 
to develop a deep, liquid and transparent 
particularly fruitful. 
market for crude oil, petroleum products 
and gas. Building blocks of such a market 
The same rationale applies at the regional 
include identifying a benchmark price for 
level, where the development of a regional 
crude oil or marker crude that is relevant 
79

for the region, obtaining support from key 
cations sector has grown at an annual average 
buyers and sellers to ensure adequate trading 
rate of 3.7 per cent between 2002 and 2008,44 
volumes, securing adequate physical storage 
compared to an annual average growth rate of 
infrastructure, establishing a conducive re- 
1 per cent for total overall employment in that 
gulatory framework and being able to 
country between 1995 and 2008.  Similarly, 
access robust financial markets to support 
Internet consumption and expenditures are 
hedging and trading.43  Other fruitful areas 
estimated to contribute 4 per cent of GDP 
for regional energy cooperation are sharing 
in Japan, 2.6 per cent in China, 3.2 per cent 
detailed information on demand, supply and 
in India, and 4.6 per cent in the Republic of 
inventory positions and building emergency 
Korea.45
response mechanisms by increasing physical 
supply security in Asia and the Pacific 
In addition to its direct impact on trade, FDI, 
through strategic reserves and cross-border 
employment and income, the development 
inventories.
of high-speed communication networks and 
improved Internet interoperability are enabling 
Overall,  a region-wide framework could encourage 
productivity gains in virtually every sector 
further investments in energy infrastructure with 
of the economy and creating demand for 
a more systematic involvement of the private sec-
new services and content. In addition, ICT 
tor, resulting in increasing volumes of intraregional 
innovations are fuelling further connectivity 
energy trade and enhanced energy security for 
and integration among economies and people, 
both importing and exporting countries. 
as evidenced by the increasing efficiency of 
logistics services and the expansion of supply 
chains. 
Information and communications 
technology and digital connectivity
Particularly significant has been the spread 
of mobile phones spurred by the production 
The growing importance of ICT supply 
of inexpensive and locally adapted models. 
chains in the region is not only contributing 
With an average of 61 subscriptions per 100 
to increasing levels of trade and FDI but also 
inhabitants in the region, the expansion 
boosting employment and the GDP. In China, 
of mobile phones is helping to empower 
for example, employment in the telecommuni-
BOX III.3. Asian and Pacific Energy Forum
Multiple regional and subregional organisations and 
initiatives in Asia and the Pacific are paying close attention 
to energy security including ADB, APEC, ASEAN, SAARC, 
ECO, SCO and SPC. ESCAP as a regional body could link 
these subregional bodies and initiatives. In this regard, 
the ESCAP resolution to convene, in 2013, the Asian and 
Pacific Energy Forum at the ministerial level is especially 
noteworthy. According to ESCAP Resolution 67/2 adopted 
in May 2011, the scope of the Forum is “to discuss the 
progress achieved in the Asia-Pacific region in addressing 
the energy security challenges at the regional, national 
and household levels, and facilitate continuous dialogue 
among member states with a view to enhancing energy 
security and working towards sustainable development.”
Source: ESCAP Commission, resolution 67/2 of 25 May 2011.  Available from www.
unescap.org/EDC/English/AnnualReports/2011-Resolutions-E67_23E.pdf.
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CHAPTER THREE
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BOX III.4. Asian Energy Highway
Following the successful experience of the Asian Highway and the Trans 
Asian Railway, another intergovernmental framework could be developed 
for an integrated regional power grid, which could be termed as the “Asian 
Energy Highway”. The experience of developing intercountry agreements 
and addressing technical standards of the Asian Highway and Railways, 
could be an effective model to enhance the energy security through 
regional collaboration. 
The proposed Asian Energy Highway could provide a system that 
enables countries to maximize the supply and demand of electricity by 
taking advantage of the broader geographical coverage by optimizing 
the available resources and encourage utilities to pursue clean fossil 
technologies and renewable energy resources. It would also provide 
better opportunities for smart grid including the decentralized systems 
to be connected to a greater system that would ensure the stability of 
the grid. The development of the ASEAN Energy Highway should also 
include the facilitation of energy trade among developing countries 
and stimulate investments in energy infrastructure. This initiative would 
connect existing subregional inter-connections under way, such as 
ASEAN’s planned integrated electricity grid, with the long term goal of 
reaching all countries in the region.
Source: ESCAP.
people hitherto marginalized and boost the 
sustainable and less carbon-intensive 
productivity of small and medium enterprises, 
patterns of production and consumption. 
which can now use systems of communication 
A case in point is the use of smart electricity 
comparable to those of large enterprises.
grids, which allow two-way, real-time 
information exchanges between generators 
Equally promising has been the development 
and customers, thus reducing the need for the 
of new software applications by young 
former to hold excess capacity. In addition, 
entrepreneurs, who are willing to take the 
videoconferencing and the sharing and 
risks and capitalize on big trends that meet 
exchanges of documents remotely through 
the local needs of the region’s increasingly 
the Internet could significantly reduce  the 
prosperous consumer base. Companies in 
need for commuting and travel, allowing for 
countries such as Bangladesh, China, India, 
savings in transport, vehicle maintenance and 
the Philippines and Viet Nam are providing 
fuel consumption. 
novel ICT solutions through both applications 
developments and the provision of content to 
The digital divide
gaming, social networking, music and news 
websites, which are experiencing exponential 
Although the information technology revo-
increases in subscriber bases. Furthermore, 
lution has greatly benefitted Asia and the 
content is becoming more localized and as 
Pacific, such benefits have been rather un-
the Internet connection becomes faster, more 
equally distributed. Beyond the growth in 
ubiquitous and more mobile, further increases 
mobile phones mentioned above, the digital 
are expected. 
divide has actually increased in the region. 
In addition, ICT has much potential to help 
At one extreme of the divide are countries 
businesses and consumers adopt more 
such as the Republic of Korea, the world’s 
81

most advanced country for ICT; at the other 
This is derived from wired connections, 
extreme, countries such as Papua New Guinea 
primarily terrestrial and submarine fibre-
rank among the lowest.46 Part of this divide 
optic cables, terrestrial wireless transmission, 
is attributable to differences in per capita 
or satellite-based transmission. Each type 
income.  This is illustrated in figure III.7 in 
provides services at different quality and 
which the size of a country bubble is 
costs.
proportional to its per capita gross national 
income, and its vertical position corresponds 
Similar to the direction of exports, most of 
to its value on the ICT develop-ment index 
the region’s data transmitting routes link to 
devised by the International Telecommunica- 
markets in Europe and North America. In 
tion Union. Unsurprisingly, the largest bubbles 
fact, around four-fifths of the high-capacity 
cluster towards high ICT development, reflect 
international routes in Asia are trans-Pacific. 
ing a strong correlation between ICT develop-
Hong Kong, China; Seoul;  Singapore and 
ment and per capita incomes (correlation value 
Tokyo  have emerged as the core global 
of 0.885). 
hubs of Asia where international carriers 
have established points of presence. The 
Figure III.7 also shows the importance of ICT 
rest are mainly through the Indian Ocean/
usage prices, indicated here as the percentage 
Mediterranean routes (figure III.8). 
of average income required to pay for a 
representative basket of ICT services – ranging 
Some least developed economies in the Pacific 
from less than 1 per cent in Singapore, for 
have made progress in getting connected 
example, to over 40 per cent in Cambodia and 
with submarine cables to the rest of the world. 
Papua New Guinea. As illustrated in figure III.7, 
Samoa and American Samoa, for example, are 
as ICT prices rise, there is a sharp fall in the 
connected through the American Samoa-
ICT development index. Furthermore, at very 
Hawaii submarine cable. The Marshall Islands 
low levels of the development index, there 
and the Federated States of Micronesia are 
is a group of countries in which the ICT price 
connected via Guam through the HANTRU-1 
basket rises exponentially (inset countries). 
submarine cable. Other Pacific island 
These are also the countries with very low 
economies are also connected via submarine 
per capita incomes, pointing to the fact that 
cables – such as French Polynesia through 
ICT prices absorb the highest percentages of 
the Honotua cable to Hawaii, New Caledonia 
average income in those very countries where 
through Australia using the Gondwana-1 
people are least able to afford them. 
cable, and Fiji through the Southern Cross 
cable. Thus far, however, these connections 
On average, less than 20 per cent of people 
are mostly confined to capitals and densely 
in Asia-Pacific have access to the Internet 
populated areas and have yet to be extended 
– far lower than in North America (78%), 
to more remote areas.
Europe (62%) and even Latin America and 
the Caribbean (33%).47 However, of note, 
Telecommunication costs in the region are 
this may underestimate the extent of 
higher than in European and North American 
disconnectedness in the poorest countries. 
Internet hub cities. For example, while 
In Asia and the Pacific, only 4 per cent of the 
Hong Kong, China is regarded as the most 
population is believed to have access to the 
competitive Internet transit market in Asia, 
high-speed broadband needed to exchange 
prices are still 2.5 to 3.5 times higher than in 
content-rich materials through data-intensive  
London.  Costs are even higher in cities far from 
streaming. As a result, it is largely only the 
major Internet exchanges, such as Bangkok 
wealthier citizens who can connect and 
and Manila due, at least in part, to the cost of 
broadcast ideas, potentially magnifying socio-
transport back to the primary exchange. 
economic disparities and deepening divi- 
sions between the connected and the un- 
Integrating regional information and 
connected. 
communications technology  infrastructure
There are significant differences in the 
Internet traffic volumes are expected to 
bandwidth available to different countries.48 
continue to increase exponentially both 
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CHAPTER THREE
Building seamless connectivity
FIGURE TITLE
III.7. 
Relationships between connectivity, usage prices and income, selected economies, 2009
10
 Republic of Korea, $19 830
9
2.5
Cambodia, $610
2
Hong Kong, China, $31 420
Lao PDR, $880
8
1.5
Japan, $38 080
Nepal, $440
Papua New Guinea, $1 180
Singapore, $37 220
1
7
0.5
x (IDI)
Macao, China, $35 360
0
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
6
nde
t I
Russian Federation, $9 340
5
Malaysia, $7 350
elopmen
Maldive, $3 970
ev
4
T D
Fiji, $3 840
Viet Nam, $930
IC
Thailand, $3760
Philippines, $2 050
3
Indonesia, $2 050
Sri Lanka, $1 990
2
India, $1 180
Bhutan, $2 030
Bangladesh, $580
1
0
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
ICT Price Basket (IPB)
Sources: ESCAP based on data from International Telecommunications Union, Measuring the Information Society 2011.  Available from www.itu.int/
ITU-D/ict/publications/idi/2011.
Notes: The size of the bubble refers to GNI per capita, USD, 2009. The ICT Price Basket (IPB) is a composite basket based on the user prices for 
fixed-telephony, mobile-cellular telephony and fixed-broadband Internet services, computed as percentage of average income level. The ICT 
Development Index (IDI) is a composite index combining 11 indicators related to the level of networked infrastructure and access to ICT, the level 
of ICT use in society, and the level of ICT skills.
within and between regions, demanding 
ports and the Internet hub cities, which could 
infrastructure that connects Asia-Pacific 
enhance the commercial viability of both. 
countries with each other directly and in 
affordable, reliable and secure ways. In fact, 
For this purpose, there have already been a 
the landmass of Asia offers huge opportunities 
number of subregional initiatives. For example, 
to provide secure broadband access. To take 
the Greater Mekong Subregion Information 
advantage of this, the region needs to invest in 
Superhighway Network,  is an ongoing ADB-
additional terrestrial fibre-optic cable routes 
funded project to develop the backbone of 
and in the development of new Internet hub 
telecommunications connectivity.49  Similarly, 
cities. 
in South Asia, ADB has funded the South 
Asia Sub Regional Economic Cooperation 
This would bring a number of development 
Information Highway initiative, which aims to 
gains. For example, landlocked countries 
boost data connectivity among  Bangladesh, 
that carry telecommunications traffic would 
Bhutan, India, and Nepal, for which $16 million 
gain additional sources of revenue. It could 
in grants and loans have been approved.50 
also reduce dependence on incumbent 
This initiative may serve as a preliminary 
carriers and drive down prices. These new 
phase for the development of an extended 
Internet hubs need not be clustered around 
SAARC information highway.
the region’s congested megacities so to 
offer opportunities for a more inclusive and 
There have also been efforts to link research 
geographically balanced development. This is 
institutions. The third generation of the Trans-
similar to the idea of building dry ports close 
Eurasia Information Network, for example, 
to land transport border points. Indeed there 
provides high-capacity connectivity among  
could be cross-sectoral synergies between dry 
83


research institutions in Australia, China, 
through Hong Kong, China  or Singapore, but 
India, Indonesia, Japan, the Lao People’s 
2010 saw the launch of an underground high-
Democratic Republic, the Republic of Korea, 
speed network connecting Yadong in China 
Malaysia, Nepal, Pakistan, the Philippines, 
with Siliguri in India.55  Other private-sector 
Singapore, Sri Lanka, Thailand, Viet Nam, 
initiatives are under way; for instance, in 2011 
Australia and Taiwan Province of China.51  This 
the national Russian telecommunications 
network, which was recognized at the eighth 
operator Rostelecom and China Telecom 
Asia-Europe Summit at the level of Heads 
agreed to expand the bandwidth of the 
of State and Government,52 is expanding to 
terrestrial Transit Europe-Asia cable system. 
include Bangladesh, Bhutan and Cambodia. A 
This provides the shortest route between 
similar initiative is the €6 million Central Asia 
Europe and Asia, running mainly over the 
Research and Education Network which came 
territory of China and the Russian Federation 
into operation in 2010; currently connecting 
and connecting countries in Central Asia 
Kyrgyzstan, Tajikistan and Turkmenistan, it is 
such as Azerbaijan, Georgia, Kazakhstan and  
expected to be extended to Kazakhstan and 
Ukraine.56
Uzbekistan.53
Despite this range of private and public 
These developments have opened up more 
initiatives, the region still lacks infrastructure 
opportunities for the private sector. By the end 
commensurate with its growing global influence, or 
of 2009, Asia and the Pacific had nine of the 
its expected surges in Internet traffic. This would 
world’s top 30 telecommunications service 
require more systematic intergovernmental 
providers by revenue.54 China and India have 
cooperation to provide an organizing frame-
primarily been connected by undersea cables 
work for expanding ICT connectivity.
FIGURE TITLE
III.8. 
Submarine telecommunications cables landing in Asia and the Pacific
Source: TeleGeography. Available from www.telegeography.com. 
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CHAPTER THREE
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Moving towards an integrated regional 
region should consider a terrestrial tele- 
infrastructure
communication network agreement that 
provides for an interconnected regional 
The Asia-Pacific region has huge potential for 
infrastructure.     Europe, for    example, has    already 
developing all forms of infrastructure. However, 
adopted a Pan-European mobile satellite 
progress in cross-border infrastructure develop-
services programme which allows satellite 
ment has sometimes been hampered by socio-
operators to realize economies of scale from 
political differences across this very diverse 
a Europe-wide network (box III.5). 
region.
Similar frameworks in Asia and the Pacific 
The need for stronger institutional frameworks 
would allow countries to remove barriers to the 
for regional infrastructure
provision of telecommunication services across 
borders, thus promoting competitiveness and 
To foster deeper collaboration between 
improving services.
governments, as well as between the public 
and private sectors, appropriate institutional 
Integrating infrastructure across sectors
frameworks need to be strengthened, or 
when missing, created. Such institutional 
Infrastructure within different sectors is often 
frameworks already exist in some sectors. 
developed independently. Instead, there 
In the case of transport, for example, many 
should also be opportunities, for example, 
subregional organizations have developed 
to piggyback ICT connectivity infrastructure 
transport strategies and intergovernmental 
with some transport and energy systems. The 
agreements, particularly for roads. Thus, 
Republic of Korea, the region’s digitally most 
ECO, for example, has a transit transport 
advanced country according to the ITU, has 
framework agreement, while countries of the 
deployed ICT fibre-optic cable infrastructure 
Greater Mekong Subregion have adopted 
along its backbone highway network. 
the Greater Mekong Subregion (GMS) Cross-
Electricity and ICT transmission lines can also 
Border Transport Facilitation Agreement for 
run alongside railway lines, allowing them 
road transport. Similarly, the development 
to use established rights of way.  India, for 
of energy infrastructure is progressing  example, is using its vast railway network to 
in the region under various subregional 
extend ICT fiber optic cables (box III.6). Energy 
and other multi-country frameworks.
and ICT infrastructures offer potential areas for 
Notably, subregional approaches may prove 
synergies as well. For example, one approach 
counterproductive in the longer-term if they 
would be to provide consumers with modern 
result in a series of unaligned agreements 
energy access and basic ICT services in one 
with overlapping memberships, or with 
package. 
different governance structures. The final 
Similarly, at the regional level, governments 
result could be small and isolated blocs of 
countries or subregions that fail to reap 
could agree to extend ICT cable conduits 
the wider benefits of larger integration. 
through the Asian Highway or Trans-Asian 
To overcome this potential problem,  Railway networks. This could avoid time-
governments may consider acceding to 
consuming and costly negotiations between 
existing international conventions, protocols 
the private sector and government, as well 
and agreements. For example, when looking at 
as between governments when borders are 
developing subregional transport agreements, 
crossed, and enable connectivity routes to be 
governments should be aware of the seven 
built in a rapid, cost-effective and rationally 
international transport conventions identified in 
coordinated manner. One option might be to 
ESCAP resolution 48/11, which are universal in 
add an ICT regional connectivity protocol to 
scope. 
existing intergovernmental agreements on 
transport developed under ESCAP auspices. 
Meanwhile, with regard to ICT infrastructure 
development, where there are few formal 
Another approach, which has been piloted in 
intergovernmental mechanisms at the regional 
several subregions, is the “corridor approach”, 
level for policy coordination, countries of the 
whereby a certain route or set of routes 
85

are designated as a corridor of economic 
already operate their own networks to fulfil 
importance, and governments focus their 
their  needs.    Some examples are electrical 
collective efforts in developing and upgrading 
substations, railway stations and highway toll 
the corridors. GMS and  CAREC programmes 
booths. However, these could now be shared 
supported by the ADB use this approach, 
between services. In India, for example, 
particularly for transport infrastructure  the Ministry of Railways leveraged its infra- 
development and facilitation efforts. The 
structure to extend the telecommunications 
International North-South Transport Corridor 
network. Another example is the modernization 
(INSTC) which stretches from the Russian 
of border crossings, which, if supported by an ICT 
Federation to the Islamic Republic of Iran 
network infrastructure that connects countries 
is another example. Corridor approaches 
directly and in affordable, reliable and secure 
are advantageous from the perspective of 
ways, allows the introduction of ICT applications 
addressing both the physical aspects of 
for customs clearance and other processes 
infrastructure development and institutional 
relating to the movement of goods. 
and regulatory aspects governing the services 
along the corridor. However, because they 
Dry ports represent an interesting microcosm 
try to be comprehensive, these initiatives 
of intersectoral integration. In order to 
require a high degree of coordination and 
maximize their efficiency and compete with 
cooperation across all stakeholders, including 
maritime ports, they should offer a wide 
government agencies and institutions and 
variety of services over and above storage 
the private sector, which adds to the time 
facilities. ESCAP is currently developing a draft 
and cost of decision-making processes and 
agreement on dry ports, which, if adopted, 
implementation. 
would  establish dry ports as an integral 
Leveraging network externalities
part of the regional transport networks. 
The integration of these transport networks 
Infrastructure development can result in 
can lead to an extended market size and 
network externalities which, even if difficult 
thus contribute to creating an environment 
to quantify, can further enhance growth. This 
which allows a higher level of international 
is most applicable to ICT, which can facilitate 
specialization. Dry ports have an additional 
and improve the efficiency in the provision 
value arising from network externalities: by 
of many services, such as health, education 
offering services over and above transport, 
or microfinance.  Many of these sectors 
they can stimulate local area development. 
BOX III.5. Intraregional connectivity in Europe
Countries in Europe are cooperating to improve intraregional 
ICT connectivity, to even the most remote areas. One initiative is 
the pan-European mobile satellite services programme, which 
aims to encourage private investment across the European 
Union in satellite-based systems for Internet access, television 
and radio, and emergency communications. To this end, the 
European Commission harmonized the use of radio spectrum 
in the 2 GHz frequency bands and authorized two private 
companies to act as pan-European systems providers. These 
measures were designed to encourage satellite operators to 
realize economies of scale by reaching a European-wide market 
with technically seamless interoperability. Similar mechanisms 
may be explored for this region.
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CHAPTER THREE
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BOX III.6. Sharing railway and telecommunications infrastructure in India
The Ministry of Railways of India created RailTel Corporation of 
India Limited India in 2000 in order to fulfil communication needs 
for administration, ticketing and efficient railway operations. By 
taking advantage of its access to railway lines, RailTel has now 
laid down a network of more than 34,000 kilometres of cables. In 
addition to modernizing the Indian Railway’s telecommunications 
network, RailTel has become a leading telecommunications 
provider and is earning revenue by marketing surplus bandwidth 
and other infrastructure to other service providers like AirTel, 
Hutch, Tata, BSNL and financial entities such as the State Bank of 
India, Dena Bank, and Amar Ujala.
Sources: India, Ministry of Railways, Indian Railways Year Book 2008-09 (2008-09).  Available 
from  www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_econ/pdf/Year_Book_
English2008-09.pdf; and RailTel Corporation of India.  Available from www.railtelindia.com.
In order to be competitive, such facilities need  
ments may be able to shape developments 
a guaranteed energy supply and good transport 
for their own benefit, and avoid being locked 
links as well as modern ICT infrastructure 
into certain technologies or conditions that 
networks and equipment.   By combining  
do not support their development goals. 
these sectors, new forms of regional integration 
can be forged. For example, Internet hubs,  
Given the rapid pace of change in the global 
unlike other infrastructure hubs, do not need 
economy, governments should also work 
to be located in physical proximity to the 
together with the private sector to plan and 
congested mega-cities of Asia, with their high 
implement regional infrastructure initiatives. 
operation costs and increased exposure to 
Private businesses are already moving ahead 
disasters. Due to their virtual functions, these 
with integration in their own spheres. This 
hubs can be located in remote areas and, as with 
has both positive and negative effects: on the 
dry ports, could offer new and cost-effective 
positive side, they are investing and providing 
ways of decentralizing economic activities for 
the services which use the infrastructure 
more inclusive and geographically balanced 
laid down by governments, thereby creating 
development. Furthermore, the possibility of 
network externalities; on the negative side, 
developing cross-sectoral synergies between 
the integration of businesses into global 
dry ports and Internet hub cities could further 
markets can make economies more open to 
enhance the commercial viability of both. 
external shocks, as was demonstrated with 
the disruption of global supply chains by 
Involving the private sector
natural disasters in 2011. Regional cooperative 
frameworks can help governments plan for 
Building and integrating major infrastructure 
these possibilities and minimize the effects. 
assets involves high capital costs and long 
gestation periods. Therefore, governments 
Infrastructure investment is, however, gene-
should embark now on broader and more 
ral y lumpy and has long gestation lags. 
comprehensive regional infrastructures in 
The next chapter will therefore examine 
transport, energy and ICT. By participating 
the potential for developing the necessary 
in regional institutional frameworks, govern-
financial architecture.
87

ENDNOTES
17  The Agreement specifies four road classes:  (i) 
“Primary” class refers to access-controlled highways, 
1  ADB and ADBI, 2009. 
used exclusively by automobiles; (ii) “Class I” is 4 or 
more lanes with asphalt or cement concrete pavement; 
2  For example, in a recent ex-ante study of the 
(iii) “Class II” is 2 lanes with asphalt or cement concrete 
proposed Padma Bridge (a 5.8-km bridge with an 
pavement; and (iv) “Class III” is 2 lanes with double 
estimated cost of $1.8 billion across the Padma River) in 
bituminous treatment pavement.
Bangladesh, an analysis was made of the effects of the 
investment. It showed that the bridge would produce 
18  For more information, see www.unescap.org/ttdw/
new demand/output in related economic sectors, 
common/tis/ah/Member%20countries.asp.
generate additional factor incomes in the value chain 
and create new jobs. In total, the construction of the 
19  As of March 2012, there were 17 parties to the 
bridge was expected to raise GDP growth by 1.2 per 
Intergovernmental Agreement on the Trans-Asian 
cent through the multiplier effects. See, ADB, 2007, p. 
Railway Network.
21.
20  Convention on Road Traffic (Vienna, 8 November 
3  See, for example, Easley and Kleinberg, 2010.
1968); Convention on Road Signs and Signals (Vienna, 
8 November 1968); Customs Convention on the 
4  A phenomenon known as Metcalfe’s Law. The so-
International Transport of Goods under Cover of TIR 
called “Metcalfe’s Law” states the value of a network 
Carnets (TIR Convention) (Geneva, 14 November 1975); 
grows as the square of the number of users.
Customs Convention on the Temporary Importation 
of Commercial Road Vehicles (Geneva, 18 May 1956); 
5  Containerisation International, 2011b, pp. 4-5.
Customs Convention on Containers (Geneva, 2 
December 1972); International Convention on the 
6  Consolidation of shipping industry and increasing 
Harmonisation of Frontier Controls of Goods (Geneva, 
size of ships also contributes to this because shipping 
21 October 1982); and Convention on the Contract for 
companies aim to maximize their cargo/profits.
the International Carriage of Goods by Road (CMR)  
(Geneva, 19 May 1956).
7  The index is generated as follows: for each of the 
five components, a country’s value is divided by the 
21  Data on Pakistan are not included in the model, 
maximum value of that component in 2004, and for 
so it is not possible to include the Amritsar – Lahore 
each country, the average of the five components 
segment in the simulation.
is calculated. This average is then divided by the 
maximum average for 2004 and multiplied by 100. 
22  Latest complete data available in July 2011.
In this way, the index generates the value 100 for the 
country with the highest average index of the five 
23  ADB, 2009.
components in 2004.
24  2010 electricity trade data extrapolated.
8  ESCAP Asia-Pacific Trade and Investment Agreements 
database. Available from www.unescap.org/tid/aptiad/
25  The project’s first stage was completed in 2009, 
agg_db.aspx.
connecting Irkutsk to the Skovorodino hub, from 
where oil is currently transported to the Pacific coast 
9  The correlation coefficient between changes in the 
by rail. The second stage will connect Skovorodino to 
index and changes in container traffic is 0.37.
the Pacific by pipeline. When completed in 2025, it is 
expected that the project will cover more than 5 per 
10  Association of Asia Pacific Airlines, 2011.
cent of the  oil demand of Asia.
11  ICAO, 2010.
26  According to Topalov, 2009, the total Sakhalin 
reserves are estimated to be 3.3 trillion cubic meters 
12  Association of Asia Pacific Airlines, 2011.
of gas and 900 million tons of oil. Currently, 2 out of 9 
Sakhalin projects are active with Sakhalin-2 supplying 
13  Gillen, 2009. 
nearly 8 million tonnes of oil and 12 billion cubic meters 
of gas.
14  Arvis and Shepherd, 2011.
27  Chichkin, 2011.
15  This connectivity index is designed to capture 
service improvements, route extensions and increased 
28  There are currently two LNG terminals functioning in 
frequency; for instance, the value of the index increases 
the country: a Marmara LNG terminal (Cerrahogullari, 
with increases in the range of destinations and/or the 
2006) with the yearly regasification capacity of 6 billion 
frequency of services.
cubic meters and Izmir LNG terminal (Global LNG Info, 
2011) with yearly regasification capacity of 7.4 billion 
16  ICAO, 2010, p. 28, table 12.
cubic meters.
88

CHAPTER THREE
Building seamless connectivity
29  EIA, 2010b.
Network (TEIN3). Available from www.tein3.net 
(accessed 3  January 2012).
30  EIA, 2010b.
52  ASEM, 2010.  
31  This is a 200-kilometre long natural gas pipeline 
from Korpezhe field north of Okarem in western 
53  European Commission (2009).
Turkmenistan to Kordkuy in the Islamic Republic of 
Iran, complemented in 2010 by a line from the giant 
54  Telegeography, 2009. 
Dovletabad field in eastern Turkmenistan.
55  Airtel, 2010.
32  Newsroom Magazine, 2011.
56  Rustele.com, 2011. 
33  EIA, 2010a.
34  Majumdar and Verma, 2008.
35  Khan, 2011.
36  ESMAP, 2008.
37  ESMAP, 2008, p. 37.
38  Indonesia is one of the largest exports of energy in 
the region, but most of them consist of coal.
39  ASEAN, 2004.
40  ASEAN, 2009d.
41  SPC, 2011.
42  Tuli, 2008.
43  ESCAP calculations based on International Energy 
Agency database,  2010.  Available from www.iea.org/
stats/rd.asp.
44  See ITU, World Telecommunications/ICT Indicators 
database 2011, for data on full-time telecommunication 
employment; and ESCAP Statistical Yearbook for 
Asia and the Pacific 2011e, p. 220, for data on total 
employment. 
45  McKinsey Global Institute, 2011, p. 15, exhibit 4. 
46  ITU, 2011, p. 29. 
47  ESCAP, 2011e, p. 238.
48  International Internet bandwidth is the capacity 
which telecommunication operators have to carry 
Internet traffic internationally. It is measured as the 
sum of capacity of all Internet exchanges. See ITU 
definition, unit of measure (mega bits per second 
(Mbit/s).  Available from www.itu.int/ITU-D/ict/
material/TelecomICT%20Indicators%20Definition_
March2010_for%20web.pdf.
49  GMS, 2010. 
50  ADB, 2007c.
51  The third generation of the Trans-Eurasia Information 
89


Photo by Warren Field
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CHAPTER  FOUR
Enhancing regional financial cooperation
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Four
Enhancing regional
financial cooperation
The economies of Asia and the Pacific have been 
integrating rapidly in terms of trade and investment. 
But, they have made less progress in finance, for which 
regional cooperation has largely been confined to 
mechanisms to provide short-term liquidity support.  
In future Asia and the Pacific could reap substantial 
economic and financial returns by enhancing 
cooperation in multiple areas of finance, including a 
more effective liquidity provision, trade finance and 
infrastructure financing.

The Asia-Pacific region boasts large official foreign 
exchange reserves, exceeding $6 trillion in 2011. Indeed, 
some countries are holding reserves well in excess of what 
is required for liquidity purposes. In addition, individuals 
as well as corporations in the region also hold substantial 
private savings outside the region. At the individual level, 
the Asian wealthy,1 who in 2008 represented 28 per cent of 
the world’s wealthy individuals, controlled $7.4 trillion or 23 
per cent of the total assets invested worldwide.2  Only 6 per 
cent of these funds are managed in the region, mainly in 
developed economies. 
One reason for investing outside of the region is the small 
size of their securities markets and their small secondary 
markets. The Asia-Pacific debt market in 2010 stood at $1.14 
trillion, but most of this – $846 billion – was denominated in 
Chinese yuan (RMB), which is not fully traded or marketed. 
Investors also face capital controls and other obstacles. 
Bonds from the Republic of Korea, for example, have high 
yields and potential gains through currency appreciation 
but as a result of a lack of liquidity in swap markets, they 
are expensive to convert to hard currency. However, some 
progress has been made; there are now currency-linked 
bonds and corporate hybrids, along with a range of other 
high-yield, investment-grade bonds with long maturities. 
92

CHAPTER  FOUR
Enhancing regional financial cooperation
Nevertheless, the markets for covered bonds 
effects coming through various channels 
and asset-backed securities are still in their 
beyond the addition to the capital stock. First, 
infancy. As commercial banks and insurance 
infrastructure enhances market access and 
companies issue relatively few bonds, the 
reduces trade costs, allowing trade volumes 
markets are also relatively small. In fact, Asia-
to multiply and trade to reach larger areas. 
Pacific bond markets are only around one-
Better physical infrastructure could also 
tenth the size of the region’s equity markets. 
enable middle-income countries to move up 
on the value chain by reducing the relocation 
The pooling of regional funds to provide 
and outsourcing costs of lower value-added 
liquidity, boost trade financing and increase 
activities to countries with lower labour costs, 
the amount of funds available for closing 
a path taken by higher-income economies in 
staggering infrastructure gaps would be 
the region and which some middle-income 
beneficial for the whole region.  The extension 
economies may need to consider in the 
and operationalization of existing agree-
medium term. In addition, better physical 
ments, as well as any new initiative, should 
infrastructure can foster a deeper degree 
seek synergies with existing schemes and be 
of integration of economies and industries 
complementary to them. The deepening of 
into regional supply chains, which could 
integration in other areas of finance that do 
enhance the region’s competitiveness in 
not involve the pooling of funds, such as the 
the global economy. Moreover, by opening 
harmonization of regulatory measures or the 
up new opportunities for employment and 
coordination of policy changes, should also 
businesses, infrastructure development could 
support this process.
boost incomes and purchasing power in the 
less developed countries, speeding up their 
Financial cooperation
convergence to higher levels of income per 
capita and closing their development gaps.
The high degree of integration among the 
Asia-Pacific economies through trade and 
As the experience of the European Union 
investment links makes the region  vulnerable 
shows, channelling funds to less developed 
to large spillover effects stemming from 
regions pays off. By linking those areas 
global or local shocks. For instance, large 
more closely to the core, new markets, new 
external shocks or swings in capital flows 
destinations for industry relocation and new 
could destabilize exchange rates and disrupt 
efficiency gains can be realized. In the case 
trade and investment flows across countries. 
of the European Union, funds have been 
By the same token, crises in final export 
channelled to less developed regions through 
destinations may disrupt production in 
fiscal transfers, the so-called Structural and 
countries integrated into global or regional 
Cohesion Funds that require matching by 
supply chains. Coordination of financial and 
subnational units’ own funds and through 
monetary policies may therefore be necessary 
loans by the European Investment Bank (EIB).
to make regional economies resilient to 
such external shocks as well as to mitigate 
Integration needs to proceed prudently
the harmful effect of heightened global risk 
aversion and a credit crunch. Cooperation, 
Although financial cooperation could be 
including in the areas of trade financing and 
very useful to help the region meet its 
settlement, is clearly necessary to avert these 
short-term and long-term financing needs, 
types of risks.
financial integration needs to proceed 
prudently. Progress in the integration of 
Cooperation, however, cannot be confined 
financial markets has been limited because 
to emergency support alone.  There is also 
of the painful consequences of a too rapid 
a strong case for cooperation to boost long-
liberalization of the capital account in several 
term growth in the region, an important 
countries of the region before the Asian 
example of which is by pooling regional 
financial crisis of 1997-1998. As a result, the 
funds for infrastructure investment. Investing 
Asia-Pacific economies are cautious about 
in infrastructure has growth-enhancing 
promoting financial integration. Many forms 
93

of financial integration involve cross-border 
About one-third of the portfolio securities 
flows through the capital account and, 
investment made by the economies of East and 
hence, require the liberalization of the capital 
North-East Asia excluding Japan, are placed in 
account. These flows include cross-border 
Asia and the Pacific, with almost half of the 
direct and portfolio investments, as well as 
total invested in South-East Asia. At the other 
cross-border lending by financial institutions 
extreme, North and Central Asia and South 
and corporations. While a few Asia-Pacific 
and South-West Asia direct only 5 to 7 per 
economies such as Brunei Darussalam, 
cent of their portfolio securities investment to 
Singapore or Hong Kong, China have some 
the Asia-Pacific region. Furthermore, the two 
of the most liberalized markets in the world, 
subregions that invest intensively in Asia and 
others such as Bhutan, Kazakhstan or the 
the Pacific, non-Japan East and North-East 
Lao People’s Democratic Republic impose 
Asia and South-East Asia, concentrate their 
controls on all types of capital transactions. 
portfolio investments in non-Japan East and 
In addition, the trend of lifting controls on 
North-East Asia, primarily in China. North and 
capital account transactions that began in the 
Central Asia and the Pacific are the only two 
1980’s experienced a reversal, first as a result 
subregions that do not concentrate their Asia-
of the 1997-1998 Asian financial crisis and a 
Pacific portfolio investments on non-Japan 
decade later as a result of the global financial 
East and Northeast Asia, but also invest heavily 
crisis of 2008-2009. 
in Japan and the Pacific. This latter pattern may 
be attributed to the larger choice of available 
Due to minimal availability of financial 
portfolio securities in Japan and Australia and 
instruments and lack of confidence in 
may reflect portfolio diversification motives. 
those instruments, insufficient governance 
structures and capital controls, the bulk of 
Learning from the Asian financial crisis, in 
portfolio investment from the region flows  to 
which foreign exchange management and 
other regions.  As shown in table IV.I, only 15.8 
capital flows were at the heart of the problem, 
per cent of the region’s portfolio capital stocks 
most countries have taken a more prudent 
was invested within the region as of 2009. 
approach towards these issues. In particular, 
However, some subregions are more active 
offshore markets, which had been designed 
providers of portfolio capital than others. 
for offshore transactions but ended up 
TABLE TITLE
IV.1. 
Interdependence in portfolio capital investment in Asia and the Pacific
Originating from
Shares of portfolio capital stock assets as of 2009 (percentage)
East and 
North-
East and 
East Asia 
South and 
North-East 
excluding 
North and 
South-West 
South-East 
Invested in
Asia-Pacific
Asia
Japan
Central Asia
Pacific
Asia
Asia
Asia-Pacific
15.8
12.9
32.3
5.5
12.4
6.8
47.2
East and North-
8.7
7.1
24.0
2.5
7.1
4.7
26.5
East Asia
East and North-
East Asia excluding 

7.3
6.5
21.7
0.1
2.3
4.7
20.8
Japan
North and Central 
0.2
0.1
0.2
0.6
0.2
0.4
0.4
Asia
Pacific
4.2
4.2
4.8
2.2
3.6
0.1
5.9
South and South-
1.0
0.5
1.1
0.1
0.4
0.8
6.1
West Asia
South-East Asia
1.7
1.1
2.2
0.0
1.0
0.8
8.3
Source: IMF, Coordinated Portfolio Investment Survey (CPIS) (2009).  Available from www.imf.org/external/np/sta/pi/cpis.htm.
Notes: The shares in the table refer to total portfolio capital including equity and debt stocks. Data are derived from the creditor side.
94

CHAPTER  FOUR
Enhancing regional financial cooperation
intermediating large amounts of funds into 
to boost offshore lending in local currencies, 
the domestic economies in the wake of the 
it is crucial to enhance efficiency in the 
1997-1998 crisis, have been scaled back or 
domestic banking system to make interest 
virtually shut down.3
rates attractive compared to other currencies.
Since the 1997-1998 crisis, economies in 
In any event, the consensus across the region is 
the region have become increasingly wary 
that any steps towards liberalization of capital 
of maturity or currency risks and have thus 
flows should be gradual and taken with great 
equipped themselves with an arsenal of tools 
care. There is no one-size-fits-all recipe for 
to make their economies more resilient to 
the process. Robust regulatory frameworks, 
any similar attacks in the future. These tools 
supervisory systems and the development of 
include a rapid accumulation of foreign 
deep financial markets capable of absorbing 
exchange reserves and the development of 
potentially large capital flows are prerequisites 
hedging instruments. Foreign exchange risk 
to move in that direction. While putting in 
is typically hedged through well-developed 
place these prerequisites, it should be noted 
non-deliverable forward (NDF) markets or 
that the liberalization of capital flows is a long 
through forward markets, while the markets 
term undertaking and that there are other 
for swaps, another hedging vehicle, are 
urgent priorities for which regional financial 
relatively less developed and hence less 
cooperation is much needed. These are (i) 
liquid in the region.4 Several economies, such 
strengthening resilience to external shocks, 
as China, India, Indonesia, the Philippines, 
(ii) realizing efficiency gains and (iii) using 
the Republic of Korea and Taiwan Province 
regional funds more effectively. 
of China have well developed NDF markets, 
while Thailand has developed an effective 
forward market.
Financing infrastructure development
Across the region, infrastructure is financed 
Making local currencies deliverable offshore 
from a variety of sources. These include 
reduces the need for NDF markets, as is 
governments, national, bilateral and 
illustrated by China, which made the RMB 
multilateral development agencies, and 
officially deliverable in Hong Kong, China 
financial markets. More recently, private 
since July 2010. Offshore markets also reduce 
investors have been taking a greater 
transaction costs. However, they could also 
share, especially through public-private 
provide a vehicle for destabilizing currency 
partnerships (PPPs) in providing financing. 
speculation. The development of such markets, 
Notwithstanding the multiplicity of financing 
thus, requires the introduction of measures to 
sources, there are large financing gaps in the 
reduce such risk, including an initial limitation 
Asia-Pacific region.
of the channels through which a domestic 
currency can flow to offshore markets, and 
Direct disbursement from the budget
stringent requirements of documentation of 
the underlying transaction. 
Governments are often the best placed to 
invest in infrastructure because, compared 
Furthermore, the establishment of offshore 
with the private sector, they can look beyond 
markets for different products should also 
financial returns. Indeed, government 
be gradual. As evidenced by the recent 
financing is justified when it corrects for 
experience of China with the so-called dim-
market failures, such as in the case of public 
sum market for RMB denominated bond issues 
goods, natural monopolies or externalities. 
in Hong Kong, China, offshore bond markets 
Governments are also best placed to finance, 
can grow rapidly. On the other hand, offshore 
for instance, rural roads which are accessible to 
equity markets may take longer to establish 
all users and where no fees are charged. Some 
because the functioning of any equity market 
services such as water supplies are natural 
depends on the facilitation of secondary 
monopolies that are more appropriately 
market trading, a piece of infrastructure which 
delivered by central or local governments. 
has not yet been developed offshore. Finally, 
And in several cases, it is only the government 
95

that can account for externalities, both 
Bilateral and multilateral agencies
positive, such as network externalities, or 
negative, such as emissions of pollutants or 
Poorer countries tend to rely on bilateral 
other damaging environmental effects and, 
and multilateral agencies for investment in 
therefore, it is best placed to provide the 
infrastructure. Some of these agencies offer 
financing. 
support, especially to the neediest countries, 
in the form of grants, but more typically they 
However, even if governments wish to invest 
provide long-term loans, usually co-financing 
in infrastructure, they may have limited 
with national governments, other agencies or 
capacities to do so. One constraint could be 
the private sector. In Asia and the Pacific, ADB 
difficulties in accessing funding or a desire 
is one of the principal multilateral sources. 
to limit the size of the public debt. Although 
It signs country partnership strategies with 
public debt ratios are not particularly high in 
governments and subsequently offers them 
the Asia-Pacific region, governments wishing 
funding for infrastructure projects according 
to take on significantly more debt to invest in 
to country allocations and sectoral priorities. 
infrastructure would need to ensure that they 
Most ADB loans are on commercial terms 
can do so in a sustainable way in projects with 
from its ordinary capital resources (OCR), but 
high social returns. In general, government 
the Bank  also offers loans on concessional 
financing is desirable as long as the social 
terms through its Asian Development Fund. 
return is higher than the private return. 
The ADB also finances private-sector projects 
Beyond that, government expenditure can 
without government guarantees, though in 
lead to an inefficient allocation of funds.
2010, such lending made up less than 15 per 
cent of its new lending. Such loans are also 
National development bank lending
often accompanied by technical assistance to 
help design and implement projects.
Many governments invest in infrastructure 
through national development banks. This 
In addition to supporting national govern-
may help reduce governments’ budget 
ments, the ADB promotes regional 
constraints because development banks are 
cooperation in infrastructure. The CAREC 
generally funded not only from government 
programme, established in 1997, for example, 
budgets but also by issuing government-
focuses on infrastructure projects in the area 
backed bonds – although the guarantees 
of transport, energy, trade facilitation and 
still constitute a contingent liability for the 
customs services. Since 1991, there have also 
government. Development banks have 
been proposals to set up a North-East Asia 
institutional advantages since they can 
Bank for Cooperation and Development with 
employ specialized personnel to manage 
the participation of China, the Democratic 
funding and lending activities.
People’s Republic of Korea, Japan, Mongolia, 
the Republic of Korea, and the Russian 
In addition to funding national infrastructure 
Federation, but the idea has yet to bear 
projects, national development banks  fruit. More recently, the leaders of Brazil, the 
typically invest in other development-
Russian Federation, India, China and South 
related activities, such as agriculture, rural 
Africa (BRICS) proposed at their March 2012 
development and public services, and finance 
Summit in New Delhi to establish a BRICS 
small and medium-sized enterprises or 
Development Bank to finance infrastructure 
micro-enterprises. Some development banks 
development in developing countries.
are extremely large and during the global 
financial crisis were used for countercyclical 
Private-sector funding
spending. The Brazillian Development Bank 
(BNDES) is the world’s largest and most 
Infrastructure investment also comes from 
effective development bank. In 2010, it lent 
the private sector. Indeed, this is generally 
more than five times as much as the World 
more efficient than public disbursement, 
Bank (table IV.2).
particularly when the financial returns 
are likely to be high and investment costs 
96

CHAPTER  FOUR
Enhancing regional financial cooperation
TABLE TITLE
IV.2. 
Comparison of selected regional and national development banks
(In billions of US dollars)
EIB
EBRD
WB
ADB
BNDES
CAF
Year established
1958
1991
1944
1966
1952
1970
Total assets
563
52
283
100
331
18.5
Total loans
482
20
120
46
218
13.9
Subscribed capital
311
28
190
144
n.a.
2.8
Paid-up capital
16
8
12
7
..
..
Equity
54
17
38
16
40
5.7
Loans disbursed 2010
79
12
29
6
101
7.7
Net income 2010
3
2
-1.1
0.6
6
0.2
Return on equity
5.3 %
10.8 %
-2.9 %
3.8 %
15.2 %
3.0 %
Source: 2010 financial statement of each institution. 
 
Notes:  The abbreviations are: EIB: European Investment Bank; EBRD: European Bank for Reconstruction and Development; WB: World Bank; ADB: 
Asian Development Bank; BNDES: Brazillian Development Bank; and CAF: Development Bank of Latin America. Data for EIB, EBRD and BNDES 
converted into US dollars using market exchange rate of 31 December 2010: US$/Euro = 1.3412 and US$/Real = 0.6024
can subsequently be recouped through 
with limited experience will find it difficult 
user charges – by collecting road tolls, for 
to price the risk involved in infrastructure 
example. Many governments have been 
projects in which there is often a high degree 
keen to encourage private participation in 
of uncertainty. In these circumstances, 
infrastructure, seeing this as a way to reduce 
when funds are offered, they are likely to 
fiscal burdens. Consequently, since the 1980s, 
be expensive. As indicated in figure IV.1, in 
they have privatized some infrastructure, 
projects with lower ratings the credit spread 
notably in telecommunications and power 
can be higher than 20 percentage points.
supplies. By doing this, the state, instead 
of being an owner and provider, serves as 
Institutional investors
the regulator for privately provided public 
services. This has paved the way for many 
An alternative to bank funding is to seek 
private-sector companies to own and manage 
other investors that take a longer-term view. 
infrastructure assets, with expectations of 
Insurance companies, pension funds and other 
attractive returns. 
institutional investors are likely to have a more 
suitable asset-liability maturity structure, but 
While this model has been employed 
this assumes that these institutions have the 
extensively in developed countries, it has 
necessary in-house resources for acquiring, 
been slower to get off the ground in poorer 
managing and disposing of infrastructure 
developing countries, where the private 
assets. The Asia-Pacific region has relatively 
sector has more limited access to funds. Such 
few institutions with this capacity.
funds come from four main sources: banks, 
institutional investors, bond markets and 
Bond markets
equity markets. 
In many countries, privately developed 
Bank lending
infrastructure has been funded by issuing 
bonds. In most Asia-Pacific countries, however, 
Commercial banks may be wary of lending 
bond markets are either non-existent or in 
for infrastructure since they are likely to 
their infancy. Moreover, most projects in less 
face a maturity mismatch. Infrastructure 
developed Asia-Pacific countries are likely 
requires long-term funding while the bank 
to be rated below a single B, for which the 
funds are primarily short-term in the form of 
premia charged over government bonds 
deposits and interbank borrowing. Nor do 
can be prohibitively high (figure IV.1). An 
banks necessarily have the skills to assess 
alternative would be to issue bonds in 
the risks related to such lending. Risk officers 
international markets, though few companies 
in Asia and the Pacific have sufficient access 
97


to them. In addition, international issues are 
there has been relatively little securitization 
often denominated in foreign currencies, 
of infrastructure assets; globally listed Asia-
raising the prospect of currency mismatches, 
Pacific infrastructure securities make up only 
of which many countries are very wary after 
3 to 4 per cent of global market capitalization. 
the experience of the Asian financial crisis. 
At present, without the necessary market and 
This could be addressed by issuing bonds 
regulatory infrastructure and improvements 
in domestic currency, though this would 
in corporate governance, equity funding is 
effectively pass the foreign exchange risk 
unlikely to finance infrastructure needs in the 
to foreign investors, which would require 
poorer developing countries.
effective hedging facilities. Bond financing is 
likely to become more important in the future 
Public-private partnerships
as bond markets become more efficient, 
though this is unlikely to happen quick 
One way of addressing government 
enough to fund urgent infrastructure projects. 
budgetary constraints and opening up more 
opportunities for private sector participation 
Equity markets
is through public-private partnerships 
(PPPs). A major motivation for using PPPs 
Similar constraints apply to equity markets. 
is to improve the value for money of service 
Equity funding could be attracted either 
delivery. Another is affordability. Because 
through investment in infrastructure  of their ability to relieve pressures on 
companies or through the securitization of 
government budgets and improve service 
infrastructure assets. At present, however, only 
delivery, PPPs are a promising avenue of 
a few infrastructure companies in the Asia-
infrastructure financing. To make it an effective 
Pacific region are listed on stock markets. With 
tool, a robust legal and regulatory framework 
the exception of activity in Australia and Japan, 
must be set up. In addition, it is crucial to follow 
FIGURE TITLE
IV.1. 
Credit spreads and bond premia for five-year term loans or issues, for different ratings of borrowers or issuers, 
 
 
January 2012
Source: HSBC, “Asian curve”. Available from  www.hsbcnet.com/research/asian-curve (accessed February 2012).
Note: One basis point is equal to 1/100th of 1per cent. Credit spread is the difference between US treasury yields and the lending rate for borrowers with 
different credit rating. Bond premia are the differences between US treasury yields and those for Asian issuers with different ratings. 
98

CHAPTER  FOUR
Enhancing regional financial cooperation
best practices in reporting PPPs in government 
linked to revenues from user charges. The co-
accounts to avoid using them for creative 
financing share between the public and the 
accounting purposes to hide government 
private sectors can be determined in different 
debt. The experience of developed countries 
ways. One possibility is to determine the share 
shows that this threat is indeed real: only 
and derive the user fee revenue according to 
about a third of OECD countries follow best 
this split (figure IV.3.). Alternatively, a certain 
practices in reporting, and countries that 
rate of return can be targeted and the public-
diverge from best practices appear to be 
private share derived from that. 
active users of PPPs. Many economies in Asia 
and the Pacific are already active users of PPPs 
The emergence of PPPs has been rather slow 
for infrastructure financing. PPPs have been 
in many countries, mainly because of the 
significant contributors to gross fixed capital 
difficulties in creating an appropriate legal and 
formation in Armenia, Cambodia, Georgia, 
regulatory framework. Even in countries where 
Malaysia, Pakistan and the Philippines (figure 
PPPs are common tools for infrastructure 
IV.2). In terms of absolute size, India is the 
financing, they have their limits owing to 
biggest market. 
both constraints on government budgets 
and on the amount of available private funds. 
Many innovative products taking the form of 
For example, India aims at meeting 50 per 
PPPs tailored to specific country circumstances 
cent of financing needs from PPPs in the five 
have been proposed and implemented 
years to come (approximately $100 billion 
recently. In Turkey, for example, infrastructure 
annually), which is an impressive share in 
funds have been proposed that would use 
international comparison but nevertheless 
the legal form of real estate investment 
falls short of meeting the country’s large-scale 
trust funds (REITs) and would operate as 
infrastructure needs. 
PPPs.5 The country’s well-developed capital 
markets would facilitate the securitization of 
infrastructure assets and direct financing by 
Initiatives for regional financial 
a public offering would economize on credit 
cooperation in Asia and the Pacific
cost and eliminate credit risk. Partnering 
It is widely recognized that a regional 
between the public (mainly at the subnational 
financial architecture could complement 
level) and private sector would be crucial as 
the international financial architecture. As a 
public participation would allow to accelerate 
result, the Asia-Pacific countries have taken 
business procedures and ensuring land that 
a number of initiatives to foster regional 
could be provided in kind, while the private 
financial cooperation.
sector would engage in the delivery of the 
infrastructure. 
Early Initiatives: The Asian Development Bank 
and the Asian Clearing Union
Another example, which has been widely 
put in practice in developed and developing 
The idea of establishing a development bank 
economies in the region, is revenue bonds. 
for Asia and the Pacific was first publicly 
Revenue bonds can be used in any type of 
mentioned by the Sri Lankan Premier 
infrastructure project with user charges. They 
Solomon Bandaranaike in 1959. In December 
were designed to overcome the budgetary 
1963, the First Ministerial Conference on Asian 
constraints of governments by mobilizing 
Economic Cooperation, held in Manila under 
private funds. In comparison to standard 
the auspices of the Economic Commission 
PPPs in which private funds can come from 
for Asia and the Far East (ECAFE), as ESCAP 
the general public. It is the users that finance 
was known then, adopted a resolution that 
the project in the revenue bond scheme. This 
called for the establishment of the Asian 
structure has the advantage of providing 
Development Bank. In March 1965, at its 
stronger monitoring incentives for investors, 
twenty-first session, held in Wellington, New 
as they are at the same time the users, 
Zealand, ECAFE approved a resolution to 
thereby increasing the success rate of project 
set up a high-level consultative committee 
implementation. The investors’ return is 
of experts to draft the charter of the Bank, 
99


FIGURE TITLE
IV.2. 
Public-private partnerships as a percentage of fixed capital formation, selected countries
Source: ESCAP, based on data from World Bank, Private Participation in Infrastructure database. Available from http://ppi.worldbank.org. 
which was subsequently endorsed by the 
underlined the need for greater cooperation 
Second Ministerial Conference on Asian 
to provide liquidity support across the 
Economic Cooperation, held in Manila in 
region. One of the most significant responses 
November 1965. A year later, in December 
emerged at the ADB annual meeting in May 
1966, the opening ceremonies and official 
2000 in Chiang Mai, Thailand. This was the 
commencement of operations of ADB were 
ASEAN swap agreement, a set of bilateral 
held in Manila, the selected headquarters site 
agreements which established a pool of 
for the Bank.6 Another institution for regional 
foreign exchange reserves, starting at $200 
financial cooperation, established in 1974 on 
million and raised in 2005 to $1 billion. In 
the initiative of ESCAP, was the Asian Clearing 
2007, at the ASEAN+3 Finance Ministers’ 
Union (ACU).7 The objective of ACU has been 
Meeting in Kyoto, Japan, the swap agreements 
to facilitate intraregional trade through the 
were multilateralized in 2009 as the Chiang 
periodic settlement of debits and credits 
Mai Initiative Multilateralization (CMIM) 
accumulated by each member against the 
Agreement, which increased the value of its 
other members using a single unit of account. 
multilateral swaps to $120 billion. Of this pool, 
80 per cent is contributed by the ”plus three” 
The Chiang Mai Initiative and its 
countries – China, Japan, and the Republic of 
multilateralization
Korea – while the ASEAN countries provide 
the remaining 20 per cent. An independent 
Between the mid-1970s and the late 1990s, 
regional surveillance office, the ASEAN+3 
the regional financial cooperation agenda 
Macroeconomic Research Office (AMRO) 
was not very active in Asia and the Pacific. This 
was set up in 2010 and is responsible for 
changed as the economic disruption caused 
conducting surveillance for CMIM operations.
by the Asian financial crisis of 1997-1998 
100


CHAPTER  FOUR
Enhancing regional financial cooperation
FIGURE TITLE
IV.3. 
A possible scheme of revenue bonds
Source: N. Yoshino, “Raising market quality - integrated design of ‘market infrastructure’”, Centre of Excellence Newsletter, No. 11, 2011.
In 2009, the original 10 per cent ceiling of 
Development of regional bond markets
agreed amounts of currency swaps not 
The other initiative for financial cooperation 
subject to IMF conditionality was raised to 20 
resulting from policy discussions in the 
per cent. Nevertheless, 80 per cent of funds 
aftermath of 1997-1998 crisis has focused on 
that could be made available are still subject 
the development of regional bond markets, 
to IMF conditionality. Another limitation is 
which provide a relatively more stable source 
that participating countries need to agree to 
of debt financing than bank loans. Two 
contribute on each occasion when a member 
initiatives have been taken in this regard.
requests support. This provision may allow 
countries not to contribute in cases when 
Asian Bond Fund (ABF): The ABF was 
they face liquidity shortages, but at the same 
established by the Executives Meeting of 
time it makes the system too slow to provide 
East Asia-Pacific Central Banks (EMEAP), an 
rapid liquidity support. Furthermore, the 
association of central banks of 11 economies in 
scale of funds available is relatively small 
the region (Australia, China, Indonesia, Japan, 
(table IV.3).
the Republic of Korea, Malaysia, New Zealand, 
the Philippines, Singapore, Thailand and Hong 
Possibly because of these limitations, 
Kong, China). The first stage of the ABF was 
especially the link with IMF conditionality, 
launched in 2003 with voluntary contributions 
the countries in the region needing liquidity 
of members to a dedicated fund with an 
support during the 2008/2009 financial 
initial size of $1 billion, to purchase regional 
crisis, such as Indonesia, the Republic of 
bonds denominated in United States dollars 
Korea and Singapore, approached the United 
and managed by the Bank for International 
States Treasury and Japanese Treasury for 
Settlements (BIS). The second ABF issue was 
bilateral swaps rather than utilizing the 
denominated in member currency funds. 
CMIM. However, the leaders of ASEAN+3 have 
Overall, the main goal of the ABF has been to 
recently announced measures to strengthen 
further enhance the underdeveloped bond 
CMIM, including (i) the doubling of the fund 
markets of member countries by enhancing 
to $240 billion, and (ii) allowing member 
the efficiency of financial intermediation and 
countries to tap as much as 30 per cent of 
promoting financial stability.9
their own quota without an IMF aid package, 
a percentage that will rise to 40 per cent in 
2014.8
101

TABLE TITLE
IV.3. 
Access to funds under the Chiang Mai Initiative Multilateralization and short-term liabilities, 2010
Contribution 
Available funds 
Available funds as 
 (billions of US 
(billions of US 
percentage of short-
Country
dollars)
Borrowing multiplier
dollars)
term liabilities, 2010
Brunei Darussalam
0.01
5.0
0.05
24.45
Cambodia
0.12
5.0
0.60
118.51
China
38.40
0.5
19.20
8.71
Hong Kong, China
4.20
2.5a
10.50
8.78
Indonesia
4.77
2.5
11.93
62.90
Japan
38.40
0.5
19.20
6.21
Republic of Korea
19.20
1.0
19.20
51.72
Lao PDR
0.03
5.0
0.15
..
Malaysia
4.77
2.5
11.93
213.46
Myanmar
0.06
5.0
0.30
103.84
Philippines
3.68
2.5
9.20
73.44
Singapore
4.77
2.5
11.93
32.26
Thailand
4.77
2.5
11.93
58.47
Viet Nam
1.00
5.0
5.00
81.45
Sources: C. Sussangkarn, “The Chiang Mai Initiative Multilateralization: origin, development and outlook, Working Paper, Series No. 230 (Tokyo: 
Asian Development Bank Institute, 2010); and IMF BOP Statistics.  Available from http://elibrary-data.imf.org/.
a  The borrowing of Hong Kong, China is limited to the IMF delinked portion as Hong Kong, China is not a member of IMF.
Asian Bond Market Initiative (ABMI): 
The Association of Credit Rating Agencies in 
Launched by ASEAN+3 in 2003, the ABMI 
Asia
aims to develop local-currency bond markets 
to make private savings available for regional 
Both credit and bond markets rely on rating 
investment needs. Efforts are being made 
agencies to ensure an efficient flow of 
to promote the demand for and issuance of 
information and as a common yardstick for 
such bonds. The relevant infrastructure and 
measuring credit risk. Similarly, a regional 
regulatory framework also needs to be put 
bond market benefits from cross-national 
in place. In this connection, ASEAN+3 has 
cooperation between rating agencies. For 
recently endorsed the establishment of a 
this purpose the Association of Credit Rating 
$700 million Credit Guarantee and Investment 
Agencies in Asia (ACRAA) was established in 
Facility (CGIF) that will provide guarantees on 
2001. At present, the ACRAA encompasses 
local currency denominated bonds issued by 
28 members from 14 countries in Asia and 
companies in the region. It is expected that 
the Pacific. The members represent different 
such initiatives will help channel money into 
accounting standards, legal frameworks, 
regional investment needs and also reduce 
domestic capital market developments 
the currency and maturity mismatches which 
and business cultures. Owing to these 
made the region more vulnerable to external 
discrepancies, however, the attitude of 
shocks in the past.
members towards the whole process also 
varies, with some countries promoting a more 
As a result of these and other efforts, Asian 
rapid harmonization process while others 
bond markets have expanded. Since 1997, the 
taking a more cautious approach.
size of bond mar kets has increased 
30-fold, but there is still a long way to go. 
In 2003, under the aegis of the ABMI, the 
Given, however, the slow progress in the 
ACRAA was tasked with strengthening 
adoption of the necessary national legislation 
domestic credit rating agencies and 
and regulation, it will be some time before 
embarking on a process to harmonize 
Asian bond markets offer a substantial source 
their methodologies, criteria, definitions, 
of financing for infrastructure development.
benchmarks, policies and disclosures.
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CHAPTER  FOUR
Enhancing regional financial cooperation
Subregional Infrastructure Investment Funds
credit confirmation and risk sharing. These 
bilateral agreements were multilateralized 
ASEAN and SAARC have set up investment 
two years later in Kuala Lumpur. In 2003, 
funds to finance infrastructure projects.
in Manila, three bilateral agreements were 
signed between India and Malaysia, India and 
SAARC Development Fund (SDF) – The SDF 
Thailand, and Malaysia and the Republic of 
was set up in 2010 as a part of SAARC financial 
Korea. The 10th Annual Meeting of the Asian 
cooperation, with an authorized capital of 
Exim Banks Forum held in Beijing in 2004, 
one billion SDRs and paid-up capital of $300 
discussed the idea of a regional export credit 
million. The fund will finance infrastructure 
agency for Asia to enhance credit, mitigate 
projects in the region, including the prepa-
risks and finance exports.10 
ration of feasibility studies. It has three win-
dows for financing: the social window for 
The recent global crisis has also spurred a 
poverty alleviation and social development 
number of initiatives. Among them is a trade 
projects; the infrastructure window for 
finance programme set up by the ADB, which 
projects in the energy, power, transportation, 
provides financing and guarantees through 
telecommunications, environment, touri-
more than 200 banks for up to three years. 
sm and other infrastructure areas; and 
In 2010, the programme supported 783 
the economic window devoted to non-
trade transactions worth $2.8 billion with 
infrastructural economic projects. The Secre-
Bangladesh, Nepal, Pakistan, Sri Lanka and 
tariat of the SDF has been established in 
Viet Nam as the largest beneficiaries. Asian 
Thimphu, Bhutan.
exporters are likely to need such a facility even 
more in the near future, since the European 
ASEAN Infrastructure Fund (AIF) – The AIF 
banks that traditionally finance about one-
was created as a part of an ASEAN initiative 
third of world trade, need to build up their 
to mobilize resources for infrastructure 
capital bases to meet Basel III requirements,  
development in 2010 with an initial equity 
and thus are likely to provide less credit in 
base of $485 million, of which $335 million 
Asia. A recent, novel initiative under the ADB 
is provided by ASEAN members and the 
programme involves a private insurance 
remaining $150 million from the ADB. Malaysia 
company that guarantees exporters’ and 
and Indonesia are the major contributors 
importers’ financing risks. 
of the equity capital of AIF, providing $150 
million and $120 million, respectively. 
At the same time, to encourage trade 
Based in Malaysia, the fund functions as a 
within the region, a number of settlement 
limited liability company and strives to have 
procedures are being eased. As part of its 
a total lending commitment of $4 billion 
strategy to internationalize its currency, China 
by 2020, which will be co-financed by the 
now encourages the use of local currencies 
ADB to the tune of 70 per cent. Therefore, it 
(either currency of the two sides in bilateral 
expects to catalyze more than $13 billion in 
trade) instead of United States dollars or 
investments in realizing the Master Plan on 
other international currencies. This should 
ASEAN connectivity adopted in 2010. The AIF 
help boost trade since smaller enterprises 
will be administered by the ADB in terms of 
find it difficult to manage foreign-exchange 
due diligence of the projects identified for 
transactions and to hedge against risk even 
funding.
though most currencies are convertible 
on the current account. In addition, the 
Trade finance
Asian Exim Banks Forum, formed in 1996, is 
The Asian financial crisis also highlighted 
comprised of the export credit agencies of 
the need to cooperate in trade financing, 
Australia, China, India, Indonesia, Japan, the 
particularly in refinancing, rediscounting and 
Republic of Korea, Malaysia, the Philippines 
reinsurance. The first step in this direction was 
and Thailand. Apart from sharing information 
taken in 2000 with the signing of bilateral 
and training resources, the Forum has fostered 
memoranda of understanding on letter-of-
mutual cooperation among its members by 
facilitating lines of credit on a reciprocal basis.  
103

Cooperation between stock exchanges 
Cooperation Dialogue (ACD), finance has 
been identified as an area of cooperation. 
In pursuit of economies of scale and 
Cooperation takes the form of periodic 
reductions in costs, stock exchanges across 
meetings of finance ministers and central 
the world have been merging. Two examples 
bank governors (as in ASEAN and SAARC), 
are the formation in 2003 of Euronext through 
as well as exchange of information and 
the merger of the Paris, Amsterdam and 
expertise. Central banks of the region have 
Brussels exchanges and the ongoing merger 
four groupings or cooperative associations 
of the exchanges in New York and Frankfurt. 
with different permutations of membership, 
Mergers, however, should proceed with care, 
namely South-East Asia, New Zealand, and 
as they can transform national monopolies 
Australia (SEANZA), Southeast Asian Central 
into regional ones. This would not reduce 
Banks (SEACEN), the Network of Central Bank 
costs for consumers as there would be less 
Governors and Finance Secretaries of the 
competitive pressure to pass on the realized 
SAARC Region (SAARCFINANCE) and EMEAP, 
cost advantages to them. The conditions for 
all of which promote cooperation between 
successful mergers between stock exchanges 
members with a focus on capacity-building 
appear to be location in the same region and 
and sharing of expertise. Finally, in December 
small pre-merger scales. Mergers, therefore, 
2011 Japan and India instituted a bilateral 
should not be considered as the only route 
swap arrangement worth $15 billion.
for achieving integration. The ASEAN model 
for regional integration, for instance, has 
Towards a development-friendly 
a cross-sectoral approach covering equity, 
regional financial architecture for Asia 
bonds, derivatives and collective investment 
schemes. The pace of integration in each 
and the Pacific 
sector is tailored to the absorptive capacity 
Although a number of initiatives have been 
of each sector and where relevant major 
taken in the area of financial cooperation in 
regional players, such as Australia, China, 
the region, most are in their early stages and 
Japan and the Republic of Korea, are also 
have limited scope and coverage. There is a 
consulted. The main vehicles of integration of 
lot of room for enhancing cooperation in the 
the seven ASEAN markets are harmonization 
region to exploit the opportunities. Possible 
of listing rules, creation of products favoured 
elements of a regional financial architecture 
by ASEAN investors and joint promotional 
to support the region’s development needs 
activities. The ASEAN Trading Link, which 
include, in addition to liquidity support, trade 
creates a single access point for ASEAN stocks, 
finance and capital markets cooperation, 
will become operational in mid-2012. Linking 
the creation of a large-scale facility for 
stock markets has great potential. The ASEAN 
infrastructure financing. These elements are 
area itself boasts over 3,600 listed companies. 
further elaborated below.
An important issue for cooperation between 
stock markets should be to enable cross-
A large infrastructure financing facility
border listings and facilitating initial public 
offerings by companies of neighbouring 
The region needs to further develop  its 
countries. This could be extremely helpful for 
financial architecture for development 
enterprises of the least developed countries 
financing, which would include systems of 
to raise capital within the region.
intermediation between its large savings 
and its unmet investment needs. Lack of an 
appropriate mechanism is the reason why the 
Other initiatives
bulk of the region’s foreign exchange reserves 
In addition to the above, there are several 
have been invested in securities issued by 
initiatives taking shape for regional co-
Western governments, such as United States 
operation in the fields of finance and macro-
treasury bills. Infrastructure development in 
economic policy. Within the framework of 
the Asia-Pacific region has been falling short 
groupings such as ASEAN, SAARC, ASEAN+3, 
of needs and often constitutes a bottleneck 
the East Asia Summit and the Asian 
to growth. For the period 2010-2020, it has 
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CHAPTER  FOUR
Enhancing regional financial cooperation
been estimated that Asia and the Pacific 
investment, infrastructure markets are 
will need to spend about $8 trillion on 
not very well correlated, thereby offering 
infrastructure.11 This projection is based upon 
an opportunity to diversify risks across 
estimates on how infrastructure investment 
economies/subregions and types of infra-
has increased in each country of the region 
structure. In addition, the infrastructure ca-
in line with a number of variables, including 
pital endowment of economies/subregions 
income per capita, agriculture value added, 
differs widely, providing another opportunity 
manufacturing value added, the extent of 
for diversification.
urbanization and population density using 
data for the period 1960-2005.12 However, 
The two main methods of investing in 
this assumes that countries will maintain 
infrastructure assets – infrastructure funds 
their historical investment patterns. It does 
and listed assets (table IV.4) – exhibit different 
not estimate the true scale of the need. Most 
liquidity and access conditions as well as offer 
developing countries in the region have been 
different degrees of diversification and risk 
underspending on infrastructure, so if they 
profiles. Consequently, they target different 
continue as before they will not be investing 
types of investors. Infrastructure funds seek 
enough to close their infrastructure gaps. 
larger investors, in particular institutional 
Hence, the real funding requirements of funds 
investors. They carry low risk, but entry costs 
for closing these  gaps may be larger than $8 
are high and liquidity is low. They provide a 
trillion. For instance, India alone is projecting 
promising avenue for insurance companies 
a $1 trillion requirement for infrastructure 
or pension funds that need to match their 
investment in its twelfth  five-year plan (2012-
long-term liabilities with long-term assets 
2017), that is $200 billion a year. 
and that may not require liquid assets, but 
rather security of investments. Asia and the 
Experience shows that investing in  Pacific, faced with ageing populations and 
infrastructure is highly profitable in economic 
the consequent extension of systems of 
and financial terms, justifying cooperation. 
social protection, is likely to boost insurance 
Infrastructure assets offer stable and  companies and pension funds. These 
predictable cash flows, long-term income 
institutions will need more long-dated assets 
streams, low default rates and opportunities 
to match their portfolios with their liabilities 
for socially responsible investing.13  In 
and be required  to do so on a marked-to-
Asia and the Pacific, they will offer higher 
market basis as dictated by recent regulatory 
returns than those from developed country 
changes.14 Listed infrastructure assets, in 
sovereign bonds. This observation is based 
contrast, may be better suited for individual 
on the performance of existing infrastructure 
investors  as expenses are low and liquidity is 
securities, which although still on a modest 
high, though risk is also high.
scale, offer yields far above those of 
United States Treasury bonds (figure IV.4). 
To realize these financial and economic 
For instance, Standard and Poor’s Asia 
returns, existing forms of cooperation could 
Infrastructure Index, which incorporates the 
be complemented with a new large-scale 
30 largest listed infrastructure firms in the 
lending facility, as proposed in this study, to 
region, has been outperforming the Global 
finance regional infrastructure with an initial 
Infrastructure Index by a large margin; 
paid-up capital of no less than $100 billion. 
it registered (annualized) returns of 19.8 
The actual financing triggered by such a new 
per cent versus 5.7 per cent for the Global 
facility would be of a much larger scale as it 
Infrastructure Index at the end of 2010 after 
could also issue bond securities and would 
one year and 16.1 per cent versus 6.8 per cent 
attract private investment into the projects 
after five  years. 
it participates in. The facility would benefit 
from low-funding costs as it would be backed 
Investing in infrastructure across the Asia-
by highly rated countries, as is the case of the 
Pacific region also offers risk diversification 
largest multinational issuer, the EIB, which 
opportunities. Due to the local nature of 
has a triple-A rating.15 Unlike many of its 
demand for and supply of infrastructure 
competitors, by issuing long-term securities, 
105


FIGURE TITLE
IV.4. 
Returns on selected infrastructure assets and major treasury bonds over 2002-2007
Source: ESCAP calculations based on data from CEIC Data Company Limited.  Available from http://ceicdata.com/; and MSCI, available from www.
msci.com/products/indices/thematic/infrastructure/performance. html?undefined.
Notes: MSCI Emerging Markets Infrastructure Fund, annualized returns 2003-07 (i.e. 5-year returns as of 31 December 2007). MSCI Asia Infrastructure 
Fund, annualized returns 2003-07 (i.e. 5-year returns as of 31 December 2007). Country-specific returns reflect the compound aggregate growth 
rates of infrastructure-related stock market indices in each country during  2002-2007.
the facility would not face maturity issues. 
identifiable revenue streams. It would 
In addition, it can mitigate currency risks by 
complement lending activities by the ADB, 
issuing in local currencies and could use swap 
owing to its large scale. Available lending 
markets for hedging. Credit risk is expected 
facilities in the region tend to be small and 
to be skewed towards the initial phase of 
tailored to national needs and incapable 
projects and to decrease disproportionately 
of meeting the financing requirements of 
thereafter.
infrastructure megaprojects with regional 
dimensions. 
Given the underdeveloped bond markets 
in the poorest countries, the best option for 
The new facility could also help coordinate 
financing infrastructure development would 
different potential financial institutions such 
be direct lending. Nevertheless, the new large-
as multilateral and bilateral development 
scale facility to finance infrastructure in Asia 
agencies as well as private-sector sources. If 
and the Pacific could also buy infrastructure 
needed, it could head a consortium of lenders. 
securities and thus help spur the development 
Its backing for infrastructure projects could 
of a market for such securities – debt or equity 
also signal opportunities to private investors, 
– in the region. 
which could help tap some of the $7 trillion of 
personal wealth market. 
Any new forms of cooperation should seek 
synergies with existing efforts. The proposed 
As a regional body, the facility would also be 
new facility would focus on projects with 
in a position to take into account intraregional 
106

CHAPTER  FOUR
Enhancing regional financial cooperation
TABLE TITLE
IV.4. 
Investing in infrastructure through funds and listed assets
 Infrastructure Funds  
 Listed Infrastructure Assets  
 Nature of investments  
Active investment in a few projects
Exposure to the broad infrastructure market  
Moderate - typically 0.7-1% plus performance  Low - typically 0.5% to 0.6%  
 Expenses  
fees
Low – investments usually locked up for a 
High – investments trade on an exchange 
 Liquidity  
certain period  
and can be liquidated easily 
Low – funds usually open only to qualified or  High – securities can be bought on the open 
 Access  
institutional investors  
market  
 Diversification  
Low to moderate – funds can diversify, but 
High – a basket may encompass different 
there are due diligence and time constraints  
infrastructure clusters and countries  
 Beta Risk  
Low  
High  
Source: Standard & Poor’s, “Listed Infrastructure Assets - A Primer”, 18 March 2009.
spillovers. The facility would therefore target 
provide liquidity support in coordination with  
cross-border projects, from which it would be 
the CMIM.
able to take fuller account of externalities. For a 
similar reason it should also seek investments 
In addition to financing infrastructure, the 
in the region’s less developed parts, as 
facility would ideally also provide advisory 
improving infrastructure in the periphery can 
services and technical assistance. This could 
benefit the entire region. In order to diversify 
cover a project development facility and 
risk, the facility would avoid concentrating on 
advisory services on financing from different 
particular countries, subregions or industries. 
sources, the instruments best suited for 
The proposed facility would also be well 
the particular project, risk assessment and 
placed to support green priorities. This should 
mechanisms for mitigation. 
attract a large pool of funds from both within 
and outside the region for investments in 
The facility’s governance should be indepen-
green infrastructure. The facility could also 
dent. This would ensure that it would make 
enhance resource, energy and eco-efficiency, 
decisions that were viable, both in terms of 
help diversify energy sources and foster 
the quality of the projects and the sources 
infrastructure that is climate smart. It could 
of finance. Such decisions should be based 
achieve this by applying criteria distinct from 
solely on net present value and cost-benefit 
those of other investors, taking into account 
principles. Contributing governments, 
not just immediate financial returns but also  
investing their foreign exchange reserves, 
broader economic, social and environmental 
would need to know that these funds were 
consideration that could bring long-term 
being used for secure, viable investments. It 
benefits. In this way, it could, for example, 
should therefore be operationally indepen-
reduce the damage from disasters that can 
dent and be able to rely on high-quality 
result from, or be exacerbated by, myopic 
experts. The facility would not operate with 
infrastructure planning.16  
government guarantees, so its lending would 
not imply any contingent liability that could 
As with the EIB, the proposed facility could 
be transferred into public debt.
also finance research and development, which 
could enhance the region’s competitiveness 
A large-scale regional mechanism would thus 
and  help boost its long-term growth 
be able to help coordinate the development 
potential. One of the benefits of national in-
of regional infrastructure and enhance 
frastructure spending is that it can be used 
network effects, boost efficiency and achieve 
countercyclically to protect employment 
economies of scale while signalling profitable 
during periods of economic downturn. In 
opportunities for private investors.
addition, because of the large scale of its 
pooled resources, the facility could be able to 
107

Development of bond and capital markets: 
Cooperation in trade finance:  Trade financing 
The development of regional bond markets 
is another area with room for enhancing 
and cooperation between the region’s stock 
cooperation to ensure an undisrupted 
exchanges would also facilitate investment 
deepening of trade interdependence in the 
flows within the region. A framework needs to 
region. Extending the coverage of bilateral 
be developed to enable cross-border listings 
and multilateral agreements is crucial to 
in the region to allow  corporate entities of 
achieve this. In addition, the idea of a regional 
countries with relatively underdeveloped 
agency with a high rating to provide export 
capital markets to raise capital in other 
credit and risk mitigation mechanisms could 
regional markets. 
be operationalized. Strengthening these 
mechanisms would limit the risks related 
Enhancing financial resilience and crisis 
to developments in global trade financing 
management: In the area of crisis prevention 
markets. Settlement procedures should be 
and response, it is important to scale up 
further simplified. Foreign exchange risks can 
and build further on the pioneering CMIM 
be mitigated by settling in the currencies of 
to expand its scope and coverage. More 
the trading parties instead of international 
importantly, the decision-making mechanism 
currencies. Offshore markets, however, should 
needs to be simplified so that funds can be 
only be developed once there is a consistent 
mobilized within a short time. Furthermore, 
regulatory and supervisory structure. This 
to make the facility popular with countries it 
way offshore-related financial volatility and 
needs to be delinked from IMF conditionalities 
arbitrage could be minimized. Also, the Asian 
and have its own surveillance and monitoring 
Exim Banks Forum, which has been active 
facility and its own conditionalities that are 
since 1996 as a regional body, could move 
countercyclical and development oriented, 
forward to create an apex regional trade 
unlike IMF conditionality that is procyclical. 
finance institution, for which it has developed 
While the size of CMIM funds is being 
an initial concept, to facilitate cooperation in 
doubled and a surveillance and monitoring 
trade finance.
office is being set up, its coverage needs 
to be extended beyond ASEAN+3 to other 
Closer cooperation between central banks 
systemically important countries in the 
region, such as Australia, India, the Russian 
and financing institutions:  As observed 
Federation and any other country  interested 
earlier, a number of cooperative bodies of 
in participating. If this enhanced facility could 
central banks have been set up in the region, 
be able to provide a rapid disbursal of funds, 
such as SEANZA, EMEAP, SAARCFINANCE 
it would become a regional lender of last 
and SEACEN, facilitating the coordination, 
resort to deal with financial emergencies and 
exchange of information and cooperation in 
gradually assume the functions of a regional 
training and capacity building between them. 
monetary fund. The importance of a well 
However, there is need for a broader regional 
endowed truly regional crisis response facility 
body that could facilitate region-wide 
cannot be over-emphasized as it could reduce 
information sharing and to assist in closing 
pressure on governments to build large 
the capacity gaps. 
foreign exchange reserves for protecting 
their economies against speculative attacks 
Capacity-building in public-private part- 
and liquidity crises. Hence, it could assist 
nerships: The enormity of resource require-
in reducing the need for running current 
ments in Asia and the Pacific for infrastructure 
account surpluses for the countries in the 
development makes it clear that a strong 
region. Enhanced regional cooperation for 
contribution from the private sector is 
crisis response and management should not, 
requisite for this endeavour. In addition to 
however, be regarded as an alternative to full 
bridging funding gaps, the private sector can 
participation in global economic relations. 
help overcome the public sector’s limited 
Instead, it should be seen as a complement, 
delivery capacity and bring efficiency and 
filling in the gaps and establishing the building 
advanced technology to the operation. For 
blocks for global multilateral cooperation.
this purpose, governments are increasingly 
turning to public-private partnerships (PPPs) 
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CHAPTER  FOUR
Enhancing regional financial cooperation
to develop and operate both economic and 
project documents, clear legal and regulatory 
social infrastructure. Some governments have 
regimes and availability of long-term finance. 
made considerable progress in the areas of 
In these areas, regional cooperation for 
institutional development, capacity-building, 
sharing of development experiences and 
streamlining administrative processes and 
capacity-building drawing upon expertise of 
financing and approving new projects. 
countries that started earlier may be fruitful. 
Important steps have included: formulating 
Regional organizations, such as ESCAP and 
PPP policy frameworks (Bangladesh, India, 
the ADB, may assist in building such capability 
Indonesia, the Republic of Korea); enacting 
in the region.17
new laws or amending existing ones to create 
a PPP-supportive environment (Cambodia, 
Regional cooperation to reform the 
Fiji, Indonesia, the Philippines, Republic of 
international financial architecture: 
Korea, Turkey, Viet Nam, and many states in 
The de-velopment of a regional financial 
India); establishing institutional mechanisms 
architecture would also enable the region 
to provide government grant/support to 
to coordinate its policies and develop a 
PPP projects (Bangladesh, India, Republic 
regional perspective on the reform of the 
of Korea); establishing special infrastructure 
international financial architecture, including 
financing institutions (Bangladesh, India, 
on issues such as an SDRs-based global 
Indonesia, the Russian Federation); creating 
special PPP units in government (Australia, 
reserve currency, a global tax on financial 
Bangladesh, Fiji, India, Indonesia, Malaysia, 
transactions to moderate short-term capital 
Pakistan, Republic of Korea, Sri Lanka, Turkey); 
flows and international regulations for 
streamlining administrative processes (India, 
curbing excessive risk taking by the financial 
Republic of Korea), among others. As a result 
sectors. The Asia-Pacific region has eight 
there has been a considerable increase in PPPs 
members in the G-20, namely Australia, 
for infrastructure. Between 2005 and 2009, 
China, India, Indonesia, Japan, the Republic 
some 826 projects worth around $204 billion 
of Korea, the Russian Federation and Turkey. 
reached financial closure. However, a few 
This is more than any other region and 
countries, namely China, India, the Russian 
highlights systemic importance of the region. 
Federation and Turkey accounted for a bulk 
With effective coordination of their positions, 
(82 per cent) of these projects. 
these countries will have greater influence 
in shaping the reform of the international 
In the aftermath of the global financial crisis, 
financial architecture, so that it is best tuned 
some governments have been reinvigorating 
to their developmental needs. In these and a 
PPPs as a part of stimulus packages sometimes 
host of other areas, the Asia and Pacific region 
through policy and fiscal measures, such as  
has the opportunity to further integrate and 
debt guarantees, direct financial stakes, tax 
coordinate its actions, thus not only ensuring 
free bonds, lower equity capital requirements 
its recovery and future dynamism but also 
and sharing interest rate risks. International 
supporting the global economy to the 
financing institutions have also considered 
greatest extent possible.
various measures. For example, the 
International Financial Corporation (IFC), the 
The ESCAP Commission at its 66th Session held 
private-sector arm of the World Bank, created 
in Incheon, Republic of Korea in May 2010, 
a global $300 billion equity fund and a loan 
adopted a resolution seeking a task force to  
financing trust to support PPPs. 
elaborate the elements of a regional financial 
architecture that could assist the Asia-Pacific 
There is need for building capacity for 
region with increased capital availability for 
fuller exploitation of PPPs for infrastructure 
infrastructure development.18 As per the 
development in the region. This would 
request, the secretariat is engaged in further 
include a better understanding about PPPs 
work on the subject that will hopefully feed 
at the policymaking level with a clear policy 
into the policy agenda of the region in the 
on risk sharing, capacity for developing 
coming years.
bankable projects and managing contracts, 
standardized administrative processes and 
109


ENDNOTES
17  ESCAP, 2011b.  
1  Wealthy defined as individuals with net worth that 
18  See E/ESCAP/66/L.11, 19 May 2010.
exceeds $1 million.
2  International Financial Services London, 2009.
3  For instance, Thailand’s Bangkok International 
Banking Facilities (BIBF) has been significantly scaled 
down and Malaysia’s Labuan International Offshore 
Financial Centre is no longer available as an offshore 
market for MYR-foreign currencies after the imposition 
of capital controls in 1998.
4  A non-deliverable forward (NDF) is a contract in 
which counterparties settle the difference between 
the contracted NDF rate and the prevailing spot rate 
by an agreed notional amount. In contrast to a forward 
contract, where the full value of the amount contracted 
is delivered at the time of settlement, in NDF contracts 
only the difference between the NDF rate and the 
spot rate is delivered, which reduces counterparty risk 
considerably.
5  Erol and Ozuturk, 2011. 
6  UNESCO, “ Archives of international organizations: 
Asian Development Bank”. Available from www.unesco.
org/archives/sio/Eng/presentation.php?idOrg=1002 
(accessed May 2012). 
7  Asian Clearing Union, “History”.  Avaiable from www. 
asianclearingunion.org/History.aspx.
8  “Asean+3 to double Chiang Mai Initiative safety net to 
$240 Bln”, Wall Street Journal, 3 May 2012. Available from 
http://online.wsj.com/article/BT-CO-20120503-703698.
html. 
9  Rajan, 2008. 
10  See www.asianeximbanks.org/meeting10.asp.
11  ADB and ADBI, 2009. 
12  Bhattacharyay, 2010. See also Fay, 2001; Chatterton 
and Puerto, 2005; Yepes, 2004. 
13  Inderst, 2009. 
14  Bodie and Briere, 2011. 
15  CAF has also been successful in tapping the United 
States, European and Japanese markets owing to its 
investment grade, though the costs are significantly 
higher as it is rated at A+. 
Photo by Salapol Ansusinha
16  For instance, it is well known that investing in climate-
smart infrastructure would also reduce the frequency or 
size of disasters, but the lack of sufficient investment in 
such infrastructure results in more disasters, adding to 
higher costs altogether. 
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CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
k
ar
ibae P
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111
UN P


Economic cooperation 
Five
for addressing shared 
vulnerabilities and risks
Greater regional integration can not only help countries capitalize on their 
strengths but also assist them to address shared vulnerabilities such as  
food and energy insecurity, disasters, pressures on natural resources, social 
exclusion and rising inequalities.

Regional economic integration has enormous potential for boosting economic 
growth and narrowing development gaps across countries, but countries can also 
cooperate to protect themselves against a range of current and future threats. As 
with the opportunities, these too cut across national boundaries. This chapter shows 
how these issues are currently being addressed through bilateral, subregional or 
regional cooperation. In addition, it argues that in the light of the interrelations 
between food insecurity, disasters and pressures on natural resources, and 
energy security (discussed in chapter three), an integrated approach to regional 
cooperation encompassing all these areas would be the most efficient way to 
reduce their risks and cooperate to articulate the most effective policy responses.
Food security
In the past half-century, Asia and the Pacific has made tremendous progress in 
food security.1 Across the region, farmers have boosted agricultural productivity 
and output, especially of rice and wheat, making food available at affordable prices 
and lifting millions of people out of hunger. The Green Revolution improved seeds, 
fertilizers and pesticides and dramatically increased crop production. Although 
the world population increased by 60 per cent between 1970 and 1995, food 
production rose faster, resulting in a nearly 30 per cent increase in cereal and 
calorie availability per person. By increasing the supply of food and reducing prices 
of food staples in Asia, the Green Revolution benefited poor people’s nutrition and 
helped reduce poverty, with the absolute number of poor people declining by 28 
per cent between 1975 and 1995.2
In spite of this progress, the region continues to face persistent poverty and 
hunger and is still home to about 65 per cent of the people suffering from hunger. 
Of particular concern is the situation in South Asia, where nearly 43 per cent of 
children are malnourished.3
It may seem surprising that a region that has in many ways been so successful 
should still experience serious problems with something as basic as food.4 The 
main obstacle is not an overall lack of food. The region produces enough food 
to enable everyone to be properly nourished and lead a healthy and productive 
life.5 The problem is that many people are not consuming enough of that food. 
112

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
They are prevented from doing so by a wide 
addressing food security in 1998 with a 
range of factors – including poverty, natural 
Strategic Plan of Action on ASEAN Cooperation 
disasters, conflict and war, poor access to 
in Food, Agriculture and Forestry. Since 2008, 
resources, lack of employment opportunities, 
it has implemented the ASEAN Integrated 
a lack of education, and underinvestment in 
Food Security (AIFS) Framework and the 
agriculture, as well as instability in the world 
Strategic Plan of Action of Food Security (SPA-
food and financial systems.6
FS).9 The SPA-FS, while addressing increased 
food production, also articulates common 
Food security is a situation in which “all people, 
objectives related to the reduction of post 
at all times, have physical and economic 
harvest losses, market promotion,  trade 
access to sufficient, safe and nutritious food to 
for agricultural commodities and inputs, 
meet their dietary needs and food preferences 
and ensuring food stability. It specifies five 
for an active and healthy life”.7 It has four 
priority commodities: rice, maize, soybean, 
dimensions: availability, access, utilization 
sugar and cassava. The framework has four 
and stability. Availability is affected by the 
components: food security and emergency 
levels of food production and stocks, and net 
relief; sustainable food trade development; an 
trade. Access depends on the ways in which 
integrated food security information system; 
the available food is distributed, as well as on 
and agricultural innovations. The ASEAN-
incomes, expenditures, markets and prices. 
United Nations Meeting on Food Security 
Utilization refers to the way in which the body 
in 2008 developed a Convergence Matrix of 
uses food, which is affected by feeding and 
Programs and Activities to allow international 
child-care practices, food preparation, dietary 
organizations and countries to coordinate 
diversity, and on how food is shared within 
individual activities within the framework.10
the household. Stability involves taking into 
account potential disruptions, as a result, for 
South Asia has made similar efforts at 
example, of bad weather, political instability 
policy coordination. The SAARC Agricultural 
or economic crisis.
Vision 2020 emphasizes the importance of 
programmes on technology, seed quality, 
Too often, food security is considered a 
and incentives to producers; sustainability in 
problem of availability through production, 
the use of natural resources; food safety; the 
and one that is best dealt with through 
availability of rural non-farm employment 
national policies, including those that aim to 
opportunities; and capacity-building.11 To 
achieve food self-sufficiency. However, food 
translate this vision into reality, the SAARC 
security also has strong regional dimensions. 
Regional Strategy and Programme for Food 
For instance,  the High Level Task Force on the 
Security, in partnership with the Food and 
Global Food Security Crisis pointed to “strong 
Agriculture Organization of the United Nations 
intraregional complementarities between 
(FAO), has identified a range of projects, 
ecological, production and consumption 
which address agricultural productivity, the 
areas and the need for shared management 
protection of natural resources, technology, 
of commonly held transboundary resources 
bio-security, food safety and agricultural 
– such as rivers and river basins, aquifers, 
trade.12 Five of these projects are being 
pastoral lands and marine resources”.8 In 
developed with technical assistance from the 
addition, the availibility of food can be affected 
ADB.13
by trade policies of exporting countries. What 
follows is a review of selected cooperation 
In 2010 regional leaders met to endorse the 
efforts pertaining to food security across Asia 
Framework for Action on Food Security in 
and the Pacific.
the Pacific. The Framework has a number of 
‘themes’ covering such issues as leadership 
Policy coordination
and cooperation, regulatory frameworks, 
enforcement and compliance, and public-
Some policies related to food security can be 
private sector collaboration. It aims to enhance 
coordinated at the regional or subregional 
the production, processing and trading of 
level. The ASEAN, for example, began 
safe, nutritious local food. At the same time, 
113

the framework is designed to protect infants 
prices, terms and conditions of distribution. In 
and vulnerable groups while empowering 
2004, the ASEAN ministers agreed to relaunch 
consumers.14 Implementing this plan requires 
the scheme as the East Asia Emergency Rice 
a broad-based partnership among national, 
Reserve, initially on a pilot basis. Established 
regional and international agencies.15
with clearer stock release guidelines, the 
reserve facilitated the transfer of 10,000 metric 
Regional food reserves
tons of rice from Viet Nam to the Philippines in 
March 2010, and developed programmes to 
A good example of successful regional 
help disaster victims in Cambodia, Indonesia, 
cooperation aimed at promoting stable 
and Myanmar.
access to food is the development of regional 
food reserves. Throughout human history, 
In October 2011, based on this successful 
households and communities have tried to 
pilot, the ASEAN countries, plus China, Japan 
maintain food stocks that could be drawn 
and the Republic of Korea (ASEAN+3) agreed 
upon at times of scarcity. However, doing 
to establish a permanent mechanism in 
so on a larger scale, at a national level, can 
which they would earmark a quantity of rice 
be costly. As the High Level Task Force on 
on a voluntary basis. This forms the ASEAN+3 
the Global Food Security Crisis pointed out, 
Emergency Rice Reserve (APTERR), which 
excessive stockpiling to build national food 
includes both earmarked and physical stocks. 
reserves can exacerbate food shortages and 
The current earmarked reserve is 787,000 
inflate prices. 
tons, of which 89 per cent is to come from the 
plus three countries. Although the agreement 
One option is to establish global stocks. The 
stipulates a physical stock, the system mostly 
first effort of this kind took place in 1975 
operates through financial stocks, given that 
when the United Nations aimed to establish 
rice is a commodity with high storage costs. 
an International Emergency Food Reserve 
Contribution to the stock is voluntary. Japan 
under the World Food Programme, with initial 
stated its willingness to provide 250,000 tons, 
stocks of rice and wheat of 500,000 tons and a 
China 300,000 tons, the Republic of Korea 
final target of 30 million tons. However, it did 
150,000 tons and ASEAN member states 
not develop in the way originally intended 
87,000 tons. Thus, the addition of the plus 
and currently survives as a voluntary facility 
three countries has helped ASEAN countries 
to provide emergency relief either from food 
raise the scheme’s level of earmarked rice 
stocks or budgeted funds. 
reserves, removing a stumbling block 
Another option is to provide facilities at 
identified in the pilot that the reserve was too 
the regional level. Such schemes should 
small for the scheme to function optimally. 
be able to address the most common food 
In emergencies, the reserves are made 
contingencies, frequent supply-demand  available according to tiers. Tier 1 involves 
imbalances and various emergencies and 
releasing earmarked reserves under special 
disasters. These schemes can take the form 
commercial transactions. In this case, the 
of real or virtual stocks of food reserve 
APTERR management team effectively serves 
agreements, financial instruments or weather 
as a mediator between provider and recipient 
risk insurance or bonds.  
countries – as happened in 2010 under 
Within Asia and the Pacific, the first steps in 
the pilot East Asia Emergency Rice Reserve 
this direction were taken in 1979 when ASEAN 
when the Philippines obtained 10,000 metric 
leaders signed the agreement on the ASEAN 
tons of rice from Viet Nam. Tier 2 offers 
Food Security Reserve, proposing a rice 
support through loans or grants agreed 
reserve of 50,000 tons, to increase by 1997 to 
bilaterally between countries. Tier 3, which 
67,000 tons and by 2004  to 87,000 tons. This 
is triggered in acute emergencies, involves 
initiative failed, due mainly to a lack of funding 
using rice stockpiles donated free of charge 
and poor administrative arrangements but 
by member States. During the pilot phase, a 
also as a result of cumbersome procedures on 
similar mechanism distributed nearly 3,000 
tons of rice, mostly procured through cash 
114

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
donations, from the Government of Japan, 
of information systems related to agriculture 
for distribution in Cambodia, Indonesia, the 
and rural statistics, thus enhancing standards 
Lao People’s Democratic Republic and the 
of transparency and comparability. 
Philippines.  In addition, in 2009, Thailand sent 
520 tons of rice to the Philippines to assist the 
There is also scope for regional cooperation 
victims of Typhoon Ketsana. 
to help build national systems and technical 
capacity for identifying food insecurity 
There have also been efforts to establish 
hotspots and groups that face food insecurity, 
regional food reserves in South Asia. In 
as well as for tracking, collecting, analysing 
1988, the SAARC established a food security 
and disseminating statistics at national and 
reserve, which aimed to collect 243,000 tons 
local levels. These systems should include 
of rice and wheat. This was never utilized, 
vulnerability mapping that combines infor-
even in 2007 in the aftermath of Cyclone Sidr 
mation on food security statistics with other 
which devastated much of Bangladesh. An 
socioeconomic data. They should also form  
important reason was that the system lacked 
the basis for early warning mechanisms for 
a mechanism for effective negotiation or for 
food security, including better weather fore-
the delivery of emergency supplies and also 
casting and timely notifications of impending 
entailed burdensome border formalities. 
 
disasters. An important institution for this 
After much debate, the SAARC leaders agreed 
purpose is the Asia and Pacific Commission on 
in 2007 to relaunch the system as the SAARC 
Agricultural Statistics, a statutory body of FAO 
Food Bank. This specifies guidelines on 
that brings together officials from the Asia-
withdrawals and negotiations, defines what 
Pacific region to review agricultural statistical 
is meant by food shortages and establishes 
systems and exchange ideas on food and 
food-grain quality standards. Even so, the 
agricultural statistics.16
system still has structural weaknesses, lacking 
a clear mechanism for releasing stocks and 
There are also subregional initiatives. ASEAN, 
failing to identify storage facilities or border 
for example, has set up a food security 
points to which stocks can be delivered.  
information system.17 Phase I, which ran from 
2003 to 2007, concentrated on building human 
Food reserve systems need to operate with 
resources and an information network, while 
clear guidelines and on a sufficient scale, and 
Phase II, 2008 to 2012, has been developing 
they should establish ways of transferring 
early warning systems and publishing com-
stocks speedily across borders without un-
modity outlooks. Another subregional initia-
duly relaxing safeguards for plants, animals 
tive is the Pacific Agriculture and Forest 
and humans. The ASEAN system, by clarifying 
Policy Network, which aims to facilitate com-
questions related to prices, terms and 
munication, disseminate information, build 
conditions of commercial transactions, is a 
capacity and enhance awareness on issues 
good example of how to address these issues 
related to agriculture and forest policy.
effectively.
Cooperation in agricultural research
Information systems
Agricultural research is a key driver for enhancing 
Monitoring food security and taking the 
agricultural productivity through technological 
necessary action requires a solid information 
change.18 Regional cooperation on research is 
base. This should include statistics on 
critical when countries face common risks, such 
demand, supply, prices, and household 
as climatic variability, reduced water supplies, 
income and expenditure patterns, along with 
loss of biodiversity and effects of mycotoxins 
vulnerability assessments, food insecurity 
and microbial hazards on food quality. It is also 
mapping, livestock diseases and information 
critical to address research needs related to 
on climate and weather patterns. Regional 
opportunities embedded in transboundary 
bodies can provide value added in monitoring 
resources. 
food security by facilitating the establishment 
115

One of the key organizations for sharing 
One example is the Greater Mekong 
scientific information and knowledge is 
Subregional Initiative, launched by Cambodia, 
the Asia-Pacific Association of Agricultural 
China, the Lao People’s Democratic Republic,  
Research Institutions (APAARI). Established 
Myanmar, Thailand and Viet Nam, with 
in 1991, the Association works to support 
financial assistance from ADB.21 This initiative 
national agricultural research systems in 
has innovated  programmes that address 
about 20 economies,  and also works with 
common resources and facilitate cross-border 
centres affiliated with the Consultative Group 
agricultural trade and investment.22 Another 
on International Agricultural Research and 
example is the Pacific Agricultural Genetic 
regional organizations. It aims to promote 
Resources Network, which works with 
cooperation on priority programmes, ex- 
countries in the Pacific to conserve their crop 
change scientific and technological know-
genetic diversity by stimulating collaboration 
ledge, improve research capacity and streng-
among researchers.
then linkages between national, regional, and 
international partners.19
Promoting further regional cooperation for 
food security 
SAARC has also been making efforts to 
coordinate regional research in agriculture. 
Asia and the Pacific is very diverse and thus 
In 2005, for example, it adopted the Global 
full of opportunities for collaboration in food 
Framework for Containment of the Priority 
security: China and India are the two largest 
Trans-boundary Animal Diseases to establish 
countries in terms of food production and 
laboratories to contain three priority diseases: 
consumption; Asia houses the largest rice 
highly pathogenic avian influenza, foot and 
exporter – Thailand – as well as the largest 
mouth disease and peste des petit ruminants, 
importer, namely the Philippines. The region 
a highly contagious viral disease of small 
is also home to one of the largest rainforests 
ruminants. In addition, the SAARC agriculture 
and biodiversity hotspots in the world and 
ministers have called for meetings among 
blessed with some of the most spectacular 
scientists and institutions for research and 
and resource rich river basin systems, such as 
extension, and for exchange visits among 
the Mekong and the Ganges-Brahmaputra, 
extension specialists. This could pave the 
and large marine ecosystems, such as the Bay 
way for regional projects and joint ventures. 
of Bengal. The challenge is to harness these 
The SAARC Agricultural Centre is another 
assets through programmes that go beyond 
effort which aims to strengthen regional 
political boundaries and the mere availability 
cooperation in agricultural research and 
of food to arrive at a cohesive strategy based 
technology by fostering the exchange of 
on the core factors underlying food insecurity.
regionally generated technical information.
Regional mechanisms, including regional 
Agricultural biodiversity is indispensable for 
economic integration organizations, such 
plant stability, and therefore, sustaining crop 
as ASEAN and SAARC, can facilitate national 
production, food security and livelihoods.20 
efforts towards achieving food security 
The sustainability of such systems depends on 
through their active involvement in four 
the health of all – plants, animals, land, water 
interrelated areas: (i) improved management 
and soil. An activity carried out in one place or 
of shared financial and human resources and 
one sector can have far-reaching implications 
natural and physical capital; (ii) harmonization 
on everything else in the system. Difficulties 
and  coordination of national agricultural, 
may arise when systems are shared by many 
food and other supporting policy frameworks, 
countries, as in the Ganges or the Greater 
including macroeconomic policies, so as to 
Mekong river basin. Ensuring stability is more 
ensure national policies that do not circumvent 
difficult when resources are spread across 
regional efforts; (iii) assuring the availability 
different countries.  In such situations, regional 
of regional risk management mechanisms so 
cooperation would be most beneficial. 
that regional food supplies and resources are 
utilized effectively to manage food insecurity 
116

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
in times of crises; and (iv) facilitation of regional 
in the production and distribution of food 
food and agricultural commodities so as to 
and agricultural commodities. This will be 
ensure that overriding national compulsions 
a prerequisite for ensuring the minimum 
do not destabilize long-term regional food 
safety and quality standards of food available 
security.
in markets. The United Nations and other 
regional entities need to recognize the 
Notwithstanding the role that regional 
existing national efforts so as to develop a 
efforts can play in achieving food security, 
truly regional and comprehensive approach 
national efforts and programmes, including 
to food policy.  
those to increase agricultural investment, 
empower women and marginalized groups 
There are also opportunities at the regional 
and improve access to quality and nutritious 
level to spread the benefits of advanced 
foods. Therefore, regional programmes must  
technology. Some countries, for example, use 
find innovative approaches to support these 
satellite technology for monitoring weather 
national efforts through sharing know-
and food production patterns while others 
ledge, accurate and timely information and 
lack this capacity. Regional bodies, including 
technologies available for enhancing food pro- 
ESCAP, are ideally positioned to facilitate 
duction, and capacity building. For this 
negotiations on technical, institutional and 
purpose, the United Nations and its affiliated 
policy-level issues that facilitate food security 
agencies can play a useful role. As the exam- 
at the regional level.
ple discussed above, the innovative collabo-
ration between ASEAN and the United Nations 
in preparing the AIFS and SPA-FS can be repli- 
Dealing with disasters
cated in other areas. Similarly, FAO has colla-
The world seems to be increasingly affected 
borated with SAARC in identifying a more 
by natural hazards, such as droughts, floods, 
integrated food security strategy.23 
storms, volcanic eruptions, earthquakes and 
tsunamis.  In 2011, two mega-disasters in the 
Food systems comprise many groups -- pro-
Asia-Pacific region alone, the great Eastern 
ducers, consumers, processors and distributors 
Japan earthquake and tsunami and the 
-- that are linked through trade across national 
South-East Asia floods caused an estimated 
borders. At both national and international 
$267 billion in combined economic losses 
levels, food production involves many eco- 
and resulted in over 18,000 deaths. Estimates 
logical and social costs which are not re-
of the global economic losses of the disaster 
flected in the price of food and agricultural 
in Japan amount to as much as $366 billion.24   
commodities. These include inappropriate 
In the light of these large losses, it seems 
farming, fisheries and livestock-rearing, the 
necessary to re-examine current strategies 
use of high doses of pesticides and chemical 
and accelerate the implementation of mea-
fertilizer and concerns about food safety, 
sures to reduce the risk of future disasters. 
processing and storage. 
Such strategies should also involve regional 
cooperation for setting standards, pooling 
In these circumstances, the jurisdiction 
resources and sharing knowledge.
of national governments often becomes 
irrelevant. The most appropriate forum 
Overall disaster risk depends on three factors: 
is therefore a regional or subregional 
(i) hazards – the occurrence of events such as 
organization. Proposals have been mooted 
earthquakes, storms or droughts, (ii) exposure 
to establish a common food security policy 
– the number of people and the scale of assets 
for East Asia, with the ultimate objective of 
exposed to such events, and (iii) vulnerability 
developing it into a common agricultural 
– the capacity to cope with and recover from 
policy for Asia. In addition to enhancing 
hazard events.
regional food security, such a policy could also 
ensure that food and agricultural commodity 
According to ESCAP estimations, all Asia-
prices reflect their true cost by including 
Pacific subregions have experienced a re-
positive and negative regional externalities 
duction in their vulnerability to disasters 
117

TABLE TITLE
V.1. 
Deaths and economic damages and losses due to recent mega-disasters in Asia and the Pacific 
Economic damages 
Number of people 
and losses  
affected 
Number of 
Number of people 
Number of 
(billion of US 
Disaster
(million)
people killed
missing
people injured
dollars)
South-East Asia floods 
25.9
2 735
..
..
46.6
(late 2011)
Great Eastern Japan 
earthquake and tsunami 

15 845
3 380
5 894
210
(March 2011)
Wenchuan earthquake 
China (May 2008)

45.6
69 227
17 923
..
85
Indian Ocean tsunami 
5
184 167
45 752
..
10
(December 2004)
Sources: Asia Pacific Disaster Report 2010; Office of Civil Defense (OCD), Philippines; Department of Disaster Prevention and Mitigation, Royal 
Irrigation Department, Thailand; National Police Agency, the Cabinet Office, Japan; Department of Hydrology and River Works, Cambodia; Hydro-
Meteorological Services of Viet Nam; Department of Meteorology and Hydrology, Lao Peoples’ Democratic Republic; Relief and Resettlement 
Department, Myanmar.
over the past two decades.25 This suggests 
weather events, such as heat waves and heavy 
that policymakers can improve a country’s 
precipitation, is likely to increase in future as a 
resilience to disasters through early warning 
consequence of climate change (see box V.1).
systems, infrastructure investments and 
strengthening disaster preparedness and 
Disasters affect all countries, but can be 
response efforts. However,  in spite of the 
particularly destructive in smaller and lower 
region’s reduced vulnerability, exposure 
income countries. In Fiji, for example, they have 
to disasters has been on the rise because, 
resulted in marked fluctuations in GDP (figure 
as populations grow, more people live in 
V.1). Within countries, disasters generally hit 
disaster-prone areas. As a result, the number 
hardest at the poorest groups who live in high-
of those affected by disasters tends to rise. 
risk environments, vulnerable, for example, 
Furthermore, the region’s poor continue to 
to flooding and landslides – and who have 
be the most exposed. This suggests the need 
fewer ways to shield themselves. Women and 
for disaster risk reduction policies to focus 
the elderly too are also disproportionately 
especially on the most vulnerable groups, 
affected. An estimated 70 to 80 per cent of 
such as the elderly, women, children and 
those who died during the 2004 Indian Ocean 
persons with disabilities. 
tsunami, for example, were women. And the 
elderly were disproportionately affected in 
The highest average annual damages and 
the earthquake and tsunami that hit Japan in  
losses in Asia and the Pacific during the 
2011.26
period 1990-2010, $30 billion, were the result 
of floods and earthquakes. However, this 
Regional impact of disasters
average is expected to be surpassed in 2011, 
as the estimated economic losses caused by 
Some disasters have a regional impact simply 
that year’s floods in South-East Asia alone 
because natural phenomena extend across 
amounted to more than $47 billion. In recent 
wide geographical areas. The 2004 Indian 
years, a relatively small number of mega-
Ocean tsunami, for example, killed more than 
disasters have caused disproportionate 
184,000 people in 14 countries across Asia and 
economic and human losses (see table V.1). 
the Pacific. Large explosive volcanic eruptions 
The frequency and intensity of extreme 
can also cause widespread economic and 
118

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
BOX V.1. Climate change and disasters
Disasters are often caused by extreme weather events, such as heavy 
downpours, heat waves and droughts, which have increased in frequency, 
intensity and duration in recent decades. The year 2010, for instance, tied 
with 2005 as the warmest year on record globally, with 19 countries setting 
national high-temperature records and the Russian Federation losing 
one third of its wheat crop. That year also recorded the highest global 
precipitation since 1900, which led to devastating floods. For instance 
six million people were displaced in Pakistan as a result of record floods 
that year. On average, such extreme weather events, when aggregated 
over decades, show an increasing trend. Over the past 50 years, global 
rainfall has increased by 7 per cent, and the occurrence of record high 
temperatures has become much more common than that of record low 
temperatures.
Although individual weather events cannot be attributed to climate 
change, it is possible to attribute changes in the risk of certain categories of 
extreme weather to climate change. Risks are represented by probability 
distributions, which describe what we should expect on average over 
a long period of time. A good understanding of such risks is crucial to 
properly assess the vulnerability of people and assets to extreme weather 
events and to implement policies to reduce their impact. 
The recent Special Report on Managing the Risks of Extreme Events 
and Disasters to Advance Climate Change Adaptation published by the 
Intergovernmental Panel on Climate Change (IPCC) argues that global 
warming increases the risk of four categories of extreme weather events 
– extreme heat, heavy downpours, drought and drought-associated 
wildfires. For such events, the historical evidence is consistent with both 
the science and simulations of the impacts of higher green house gas 
concentrations. The relationship between global warming and other 
extreme weather phenomena is weaker, as in the case of hurricanes, or 
nonexistent, as in the case of tornadoes.
Despite the progress made in understanding the relationship between 
climate change and extreme weather events, much more work is needed 
to refine risks assessments in the Asia-Pacific region. For that purpose, it 
will be necessary to improve substantially the collection of data, especially 
at the local and regional levels. With improved data and quantitative 
models with high resolution, it would be possible in future to prepare 
more precise analyses of the impacts of climate change at the national and 
subnational levels, which, in turn, would enable policymakers to improve 
their planning for disaster mitigation and assist farmers, for example, to 
plant crops that would be more suitable for weather conditions in the 
future.
Sources: Huber and Gulledge (2011); IPCC Special Report on Managing the Risks of Extreme Events and Disasters to Advance 
Climate Change Adaptation, Fact Sheet. Available from http://ipcc-wg2.gov/SREX/images/uploads/IPCC_SREX_fact_sheet.
pdf.
119

FIGURE TITLE
V.1. 
Fiji, annual fluctuations in GDP relative to the incidence of disasters, 1980-2008
10
8
6
)
4
ent
r c

2
ate (pe
th r

0
ow
Storm 
DP gr
-2
Floods
l G
Drought
Flood
Annua
Storm
-4
Storm
Storm 
Storm 
and 
drought
-6
Storms
-8
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: ESCAP based on data from www.databank.worldbank.org and International Disaster database, www.emdat.be.
human losses. For example, the costs to 
North America, as missing parts forced major 
aviation of the 1991 Mount Pinatubo eruption 
manufacturers to curtail operations. Thailand 
in the Philippines exceeded $10 billion. In 
also produces about one-quarter of the 
addition, this eruption led to a significant 
world’s hard-disk drives. Factories belonging 
drop in temperatures worldwide of close to 
to one of the world’s largest manufacturers, 
four degrees for about a year. The Asia-Pacific 
which produces more than 60 per cent of its 
region has many active volcanoes in countries 
output in Thailand, were submerged, severely 
such as  Japan,  Indonesia, Papua New Guinea, 
affecting global computer supplies.
the Philippines, the Russian Federation 
and Vanuatu. Although, during the past 20 
Similarly, the 2011 earthquake and tsunami in 
years, volcanoes have caused smaller losses 
Japan caused economic damages and losses 
than earthquakes or floods, they can have 
of $210 billion in this country, but it also 
enormous destructive power. Volcanoes can 
affected severely the Tohoku region, which 
also affect food security in the light of their 
produces $322 billion worth of intermediate 
potential to halt agricultural activities, as was 
goods and services that feed into global 
the case with the Mount Tambora eruption of 
supply chains. 
1815 in Indonesia and the El Chichon, Mexico 
eruption in 1982. 
Disaster risk reduction
The socioeconomic impacts of disasters can 
Disasters are no longer perceived simply as 
be further amplified as a result of growing 
extreme events created entirely by natural 
economic interdependence. For instance, the 
forces but rather as manifestations of 
2011 floods in Thailand affected 3.1 million 
unresolved problems of development. Policies 
people and cut the country’s rate of growth 
have evolved from largely top-down relief and 
of the GDP to 0.1 per cent from an earlier 
response efforts to intersectoral approaches 
projection of 3.2 per cent,27  but the impact 
of risk reduction with greater emphasis on 
spread far beyond Thailand. The floods 
early warning and mitigation. Even so, local, 
inundated factories, major highways, and 
national and international resources are still 
rural roads, disrupting global production for 
predominantly used for emergency response.
a number of goods. Thailand has the world’s 
twelfth largest automobile industry, which 
Most countries in the region have established 
is highly integrated into the global supply 
national policies, legislation, frameworks, 
chain. Factory closures were felt as far as 
strategies, or plans to prepare for and cope 
120

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
with disasters. At the multilateral level, 
 
Pacific Disaster Net, a comprehensive web-
the Hyogo Framework for Action, a global 
based information resource for disaster risk 
blueprint for disaster risk reduction for the 
management.
period 2005-2015, was adopted by 168 
United Nations member states at the World 
Other initiatives include the Regional 
Conference on Disaster Reduction. Within the 
Space Application Program for Sustainable 
United Nations, the focal point for disaster 
Development, the Central Asia Disaster 
risk reduction is the International Strategy 
Risk Reduction Knowledge Network, the 
for Disaster Reduction, which also manages 
International Strategy on Disaster Reduction 
a biennial forum, the Global Platform for 
Asia Partnership, the Asian Disaster 
Disaster Risk Reduction. 
Preparedness Center, the Mekong River 
Commission, the International Centre for 
Thus far, however, much less attention has 
Integrated Mountain Development, and the 
been paid to the opportunities for regional 
Asian Disaster Reduction Center.
responses. One important forum is the 
Asian Ministerial Conference on Disaster 
Asia and the Pacific would, however, 
Risk Reduction. This biennial conference 
benefit from more comprehensive regional 
organized since 2005 has allowed ministers 
agreements and cooperation. Better 
in charge of disaster management to reaffirm 
management of transboundary river basins, 
their commitment to the implementation of 
for example, can prevent floods in the 
the Hyogo Framework for Action. 
countries that share the basin. Tsunamis 
also raise the need for regional cooperation 
An example of  subregional cooperation is the 
to develop effective early warning and 
ASEAN Agreement on Disaster Management 
communication systems. Obstacles faced 
and Emergency Response, which entered 
during bilateral discussions and agreements 
into force on 24 December 2009. This aims 
could be better addressed through multilateral 
to promote subregional cooperation, and 
approaches where neutral parties can reduce 
has a range of components: provisions on 
sensitivities and pave the way for cooperation. 
disaster risk identification, monitoring and 
Resolutions passed by the Intergovernmental 
early warning; prevention and mitigation; 
Oceanographic Commission of the United 
preparedness and response; rehabilitation, 
Nations Educational, Scientific and Cultural 
technical cooperation and research;  Organization (UNESCO) resulted in the 
mechanisms for coordination; and simplified 
establishment of the Indian Ocean Tsunami 
customs and immigration procedures. 
Warning and Mitigation System with an 
intergovernmental coordination group set up 
There are other subregional cooperation 
to govern it. 
mechanisms. Under the auspices of SAARC, 
the SAARC Disaster Management Centre, 
Regional early warning systems
set up in 1996 in New Delhi, administers the 
South Asian Disaster Knowledge Network. 
The greatest challenge in implementing 
ESCAP and the World Meteorological 
regional early warning systems is that similar 
Organization (WMO) manage the Typhoon 
patterns of natural hazards may result in widely 
Committee, which covers Cambodia, China, 
differing impacts in different countries. The 
Democratic People’s Republic of Korea, Japan, 
impacts vary based on levels of development, 
Lao People’s Democratic Republic, Malaysia, 
the size of economy and other socioeconomic 
Philippines, Republic of Korea, Singapore, 
influences. After the 2004 Indian Ocean 
Thailand, Viet Nam, United States of America, 
tsunami, for example, Thailand experienced 
Hong Kong, China, and Macao, China. 
 
lower-than-expected economic growth while 
ESCAP and WMO also manage the Panel on 
the rate of growth in Indonesia exceeded 
Tropical Cyclones, which covers Bangladesh, 
expectations.  Another challenge is that 
India, Maldives, Myanmar, Oman, Pakistan, 
National Disaster Management Authorities/
Sri Lanka and Thailand. The Pacific Islands 
Organizations are still in their early stages of 
Applied GeoScience Commission operates 
development. 
121

An example of sound regional cooperation 
reduce risks. The Asia-Pacific Gateway for 
is the Regional Integrated Multi-Hazard Early 
Disaster Risk Reduction and Development is 
Warning System for Africa and Asia (RIMES), 
an online platform aimed at assisting disaster 
a regional tsunami early warning provider 
management authorities and relevant 
for the Indian Ocean supported by ESCAP. It 
ministries in efforts to mainstream disaster 
includes the following elements: collecting 
risk reduction into development planning.
data and undertaking risk assessments; 
monitoring hazards and early warning 
Fostering regional cooperation
services; communicating risks; and building 
national and community-level response 
Regional and transboundary cooperation in 
capabilities (see box V.2).
developing risk reduction and adaptation 
strategies can bring mutual benefit to 
An important intergovernmental forum 
all countries, for example, by reducing 
for improved regional cooperation is the 
uncertainty through exchanges of data and 
ESCAP biennial Committee on Disaster Risk 
information. Cooperation can also widen the 
Reduction, which provides opportunities 
knowledge and information base, increasing 
for ESCAP member States to discuss and 
the set of options available for prevention, 
share experiences on disaster risk reduction 
preparedness and recovery, and thereby 
policies. The joint ESCAP/UNISDR publication, 
helping to find better and more cost-effective 
the  Asia-Pacific Disaster Report, which is 
solutions. Priorities should include:
published every two years, looks at regional 
trends, linkages between disasters and 
 
• Strengthening the One UN approach 
development, and possible approaches to 
for disaster risk reduction through the 
Regional Coordination Mechanism
BOX V.2. Regional cooperation on early warning systems for disaster risk  
   reduction
An important recent initiative in the area of early warning systems 
has been the establishment of the Regional Integrated Multi-
Hazard Early Warning System for Africa and Asia (RIMES).  RIMES 
is an international and intergovernmental institution dedicated 
to the generation and application of early warning information. 
It evolved from the efforts of countries in Africa and Asia, in the 
aftermath of the 2004 Indian Ocean tsunami, to establish a regional 
early warning systems within a multi-hazard framework for the 
generation and communication of early warning information, and 
capacity-building for preparedness and response to transboundary 
hazards. RIMES, which operates from its regional early warning 
centre, located at the campus of the Asian Institute of Technology 
in Pathumthani, Thailand, was established on 30 April 2009. Its 
current members are Bangladesh, Cambodia, Comoros, India, Lao 
People’s Democratic Republic, Maldives, Mongolia, Mozambique, 
Papua New Guinea, Philippines, Seychelles, Sri Lanka and Timor-
Leste.
Source: RIMES. Available from http://www.rimes.int.
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CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
 
• Strengthening specialized regional  volatile energy and resource prices, land 
centres, including those for training, 
use changes and climate change, which are 
research and capacity-building; 
becoming increasingly interconnected. 
 
• Promoting social and economic analyses 
Some of the most significant pressures 
on disaster risk reduction in the region
arise from the rising demands for energy, 
 
• Producing regional studies, baseline 
which is projected to increase by about 34 
assessments and periodic reviews; 
per cent over the next decade.28 This will 
 
• Sharing disaster data and statistics in the 
pose particular problems for countries that 
region
rely heavily on imported energy sources, 
which are facing rising and volatile prices.29 
 
• Using satellite technology for disaster 
Although investment in renewable energy is a 
risk reduction; 
critical response to meeting energy demand, 
 
• Promoting technical cooperation and 
there is a rising concern about the social 
developing standards; 
and environmental costs caused by two key 
 
• Facilitating the cooperation of various 
renewable energy sources,  hydropower and 
research and policy communities and 
biofuels.30
creating synergies between technical, 
There will also be pressure on water and 
practical, and political counterparts.
other ecosystem services. The region already 
has the world’s lowest per capita availability 
Pressures on natural resources and 
of water resources (see figure V.3). If current 
sustainability
trends and management practices persist, by 
Rapid economic growth in Asia and the 
2025, a significant proportion of the region’s 
Pacific has placed increasing pressure on 
population will live in water-stressed river 
natural resources. With limited endowments 
basins.31
of natural resources, the region is particularly 
In addition, there are threats to biodiversity. 
vulnerable to disruptions associated with 
Asia and the Pacific is a biologically rich region, 
FIGURE TITLE
V.2. 
Primary energy use in Asia and the Pacific and the rest of the world, 1971-2008
300
250
200
Rest of the world
ules
Asia and the Pacific
150
Exa Jo
100
50
0
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
Source: ESCAP.
123


FIGURE TITLE
V.3. 
Availability of water resources per capita, by region and subregion, 2008 
Source: FAO, AQUASTAT, Information system on Water and Agriculture (accessed 8 February 2012).
with about 60 per cent of the world’s species. 
of materials used in the region, but by 2005, 
However, as of 2010, nearly one-third of all 
construction materials, such as sand, gravel, 
threatened plant and animal species are found 
concrete and steel, had become the largest 
in the region.32 Forests too are being degraded, 
category, representing 49 per cent of the total.  
with many primary forests being replaced 
The price volatility of these commodities 
by plantations based on non-native species, 
increases uncertainty and creates new risks 
in some cases to produce biofuels. With the 
and limits to the growth of certain sectors (see 
laudable exception of Bangladesh, mangrove 
figure V.5).
forest cover has been reduced in most Asian 
countries, increasing the risks of flooding in 
Regional responses
coastal areas. Changes in forests are not only 
leading to further environmental degradation 
Recognizing that pressures on natural 
but also resulting in additional carbon 
resources and many other related environ-
emissions and increasing vulnerabilities to 
mental problems pose threats to economic 
disasters and water insecurity.
growth and poverty reduction, the region’s 
leaders have been developing regional 
Other environmental concerns that threaten 
responses. One of the important approaches 
the sustainability of economic growth include 
involves the promotion of green growth, as 
increasing sulphur dioxide emissions, the 
discussed at the Fifth Ministerial Conference 
rapid accumulation of solid waste, and the 
on Environment and Development in Asia and 
increasing prices and scarcity of many natural 
the Pacific held in Seoul in 2005 and the Sixth 
resources. Indeed, by 2005, Asia and the Pacific 
Asia and the Pacific Ministerial Conference 
had become the world’s largest resource user, 
on Environment and Development held in 
consuming 35 billion tons per annum of key 
Astana in 2010. 
materials, such as biomass, fossil fuels, metal 
ores and industrial and construction materials. 
Economic policy system changes are required 
This represents 60 per cent of the global use 
to enable technological innovations and 
of resources (see figure V.4).33
research and development to improve eco- 
and resource efficiency. This will further create 
At the same time, the composition of 
important economic and financial savings 
materials used in the region’s economies 
and gains, which can be invested in poverty 
has also changed significantly. In 1970 the 
reduction and social welfare programmes. 
biomass category accounted for 47 per cent 
The Asian and Pacific Regional Preparatory 
124


CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
FIGURE TITLE
V.4. 
Domestic material consumption in Asia and the Pacific and the rest of the world, 1970-2005
35
Asia and the Pacific
30
25
Rest of the world
20
 tons
 of

15
Bilions
10
5
0
1970
1975
1980
1985
1990
1995
2000
2005
Source: CSIRO and UNEP Asia-Pacific Material Flow database. Available from www.csiro.au/AsiaPacificMaterialFlows.
FIGURE TITLE
V.5. 
Shares of main material categories in Asia and the Pacific, 1970 and 2005
Source: CSIRO and UNEP Asia-Pacific Material Flow database. Available from www.csiro.au/AsiaPacificMaterialFlows.
125

Meeting for the United Nations Conference 
Among the most effective means of 
on Sustainable Development (UNCSD) – 
technology transfer are regional and inter-
Rio+20, held in October 2011, underlined, 
regional partnerships (see box V.3). In Asia and 
among other key sustainable development 
the Pacific they have included the Kitakyushu 
priorities for the region, the need for regional 
Initiative for Clean Environment,36 and the 
cooperation to “facilitate technological inno-
Seoul Initiative Network on Green Growth.37 
vation and transfer and promote access to 
The Astana Green Bridge Initiative38 is evolving 
green technologies at affordable costs.”34 A 
as another driver fostering regional and 
recent review of country submissions to the 
intraregional cooperation for technological 
UNCSD secretariat confirms that technology 
innovation and transfer of green technologies. 
transfer and capacity building are among the 
top priority issues.35
How can countries in the South launch the 
necessary initiatives to leapfrog into these 
BOX V.3. Innovation and technology transfer
ESCAP has been supporting the widespread sharing of knowledge and 
transfer, adaptation and replication of environmentally sound technologies, 
with the support of its Asian and Pacific Centre for Transfer of Technology 
(APCTT) and its subregional offices, particularly in the Pacific. ESCAP has 
also been building regional cooperation for transferring low-cost, low-tech, 
locally affordable and applicable technologies throughout the region. One 
of its activities was to conduct a regional study on the promotion of publicly 
funded environmentally sustainable technologies (EST) in the Asia-Pacific 
region, initiated in 2007.a  The study recommended that national systems 
of innovation be enhanced and called for boosting regional cooperation 
through the creation of a regional network of national innovation centres or 
agencies closely involved in the full cycle of EST development and transfer.
Since its inception in 1977, APCTT has been helping to upgrade capacity in 
technology transfer and innovation management. Its experience suggests 
that while certain countries have developed sophisticated insights into the 
structuring and operation of national innovation systems others lack this 
capacity. The Centre has also worked extensively on identifying barriers to 
the transfer of green technologies, in particular low-carbon technologies. 
In general, national efforts in building capacity to plan and implement 
technology transfer activities in SMEs are weak in many developing countries. 
As a result, ESCAP has implemented a number of projects to support them. 
For example, a training centre in Samoa has developed low-cost, locally 
appropriate technologies for capturing biogas for cooking and heating from 
human sanitation units and animal husbandry. 
Similarly, local adaptations and improvements of technology applied in Viet 
Nam with the assistance of Thai experts where successfully replicated in Fiji 
and Vanuatu. Another example has been the use of solar renewable energy 
in Cambodia, where Sunlabob, a Lao People’s Democratic Republic-based 
126

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
BOX V.3. Continued
private company, set up local cooperatives to provide solar lantern rental 
systems in floating villages of the Thonle Sap lake area.
In 2011, APCTT organized a business-to-business forum on “Fostering 
Business Partnerships to Promote the Adoption and Utilization of Renewable 
Energy Technologies” in Colombo, Sri Lanka. It was organized in association 
with the National Engineering Research and Development Centre of Sri 
Lanka, the National Cleaner Production Centre of Sri Lanka (NCPCSL), and the 
Ceylon Chamber of Commerce. As part of the forum, one-to-one meetings 
were set up between renewable-energy business firms and technology 
transfer intermediaries in Sri Lanka and firms from six other participating 
countries, namely Fiji, India, Mongolia, Nepal, the Philippines and Thailand. 
One outcome of this meeting is negotiations between a company in the 
Philippines and NCPCSL on transferring solar-assisted air conditioning 
technology to Sri Lankan companies.
Source: ESCAP-APCTT.
a  Van Berkel, 2008.
new areas? For this purpose, it would be 
centres” to build local capacity and finance 
invaluable to have an ICT-based South-South 
the acquisition of relevant low-carbon 
network to share information on, for instance, 
technologies through buyer-friendly 
national policies, the technologies available 
business processes.40 Another, in the health 
for sale, the nature of intellectual property 
sector, involves the search for new drugs. In 
protection and the institutions working 
2008, the Council of Scientific and Industrial 
in each area. Another useful step, to avoid 
Research of India launched the Open Source 
wasteful duplication of efforts and resources, 
Drug Discovery programme,41 which aims to 
would be to form a South-South network of 
attract the brightest minds worldwide to be 
research and development institutions. The 
part of the drug discovery movement.42
intellectual property thus generated could be 
owned jointly, and disseminated over a wider 
Setting priorities
range of SMEs as proposed later in this study. 
Countries of the South should not of course 
In conclusion, regional cooperation could 
work only among themselves. They also need 
help promote environmentally sustainable 
to work with the developed countries in the 
technologies in SMEs in the following areas:
North to strengthen other business-oriented 
technology transfer efforts. 
Skills – Creating a critical mass of skills to help 
firms, especially SMEs, plan and implement 
Another option for SMEs, in particular, is 
technology transfer with a business focus, 
through public-private partnerships (PPPs).39  
particularly those for which there are no 
Such initiatives are not new; they were used, 
intellectual property constraints. This could 
for example, to promote the Green Revolution 
provide opportunities for PPPs.
in agriculture. One proposal currently under 
discussion is to develop “climate innovation 
Supply chains – Enabling the growth of 
effective supply chains and marketing 
127

networks, which can manufacture, market, 
Addressing sustainability risks through 
and service low-carbon technologies. 
technological cooperation 
Research and development – Encouraging 
The case for regional cooperation to meet the 
international collaboration in research,  challenges considered in this chapter – food 
design, development and deployment. This 
and energy insecurity, disasters and pressures 
should aim to reduce the risks associated 
on natural resources – is based on two facts: 
with capital costs through government 
that their impact often cuts across national 
demonstration activities,43 and  would help 
boundaries and that national capabilities 
prevent innovations lying dormant without 
to reduce risks and mitigate impacts are 
being commercialized. 
unevenly distributed across countries in the 
region. As a result, cooperative efforts could 
Available technologies – It is important to 
both be in the best interest of all countries 
identify, for SMEs  in particular, the potential 
and make the overall regional response to 
of mature low carbon technologies for which 
these challenges more effective.
there are no intellectual property issues. Such 
information can be publicized widely through 
A critical element for regional cooperation 
government and international agencies and 
in the three areas is the production and 
through private-sector participation. 
dissemination of accurate information 
to facilitate the preparation of diagnoses 
Intellectual property – Introducing guarantees 
and risk assessments and to help national 
for strong intellectual property enforcement 
governments plan and implement the most 
while also developing locally appropriate 
effective policy responses. In addition, it is 
versions.44
very important to help all countries in the 
Innovation hubs – Establishing regional hubs, 
region build sufficient capacities in the areas 
based on the “open innovation” principle for 
of data collection and analyses, diagnoses 
instance, in the ASEAN or SAARC regions, to 
and risk assessments, and policy planning and 
develop critical low carbon technologies.
implementation.
Financial incentives – Designing market 
As mentioned earlier in the chapter, a large 
transformation incentives to overcome costs 
number of subregional, regional and global 
that prevent firms from switching to low 
institutions and initiatives aim at fostering 
carbon technologies. 
cooperation to address the challenges of food 
insecurity, disasters and pressures on natural 
Clean development mechanism – Providing 
resources. The majority of these cooperative 
comprehensive information on the Clean 
arrangements are highly specialized and 
Development Mechanism with respect to 
cover a limited number of countries in the 
eligibility criteria and potential emission 
region. Subregional organizations, such as 
reduction opportunities.45
ASEAN and SAARC, play very important roles 
as umbrella organizations that encompass 
Microfinance – This currently appears to be 
various institutional mechanisms with the 
operating only in niche markets. Scaling up its 
same membership.
use will require management of transaction 
costs and credit risk, and offering low-cost, 
However, as highlighted in previous chapters 
long-term financial resources.46
of this study, subregional approaches to 
cooperation are not the most effective. For 
Bank finance – Building capacity in the 
instance, in the case of trade, a key reason for 
finance and banking sector, in areas such as 
a broader approach to regional integration 
low-carbon energy finance, including models 
was given by the widespread distribution of 
for the effective use of available finance and 
export opportunities, which are not limited 
economic and feasibility analysis.47
to the confines of each subregion. In the case 
of transport, energy and ICT infrastructure 
investment, the existence of network 
128

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
externalities provide a strong economic case 
The funding of a potential regional innovation 
for aiming to build the broadest possible 
fund would come from one of the regional 
networks, encompassing the whole Asia-
development funds proposed below.
Pacific region.
A similar argument can be made for a region-
Addressing social risks
wide response to the challenges of food 
Despite the region’s economic dynamism, the 
insecurity, disasters and pressures on natural 
number of people living in extreme poverty, 
resources. Because the three challenges pose 
suffering from hunger and lacking insufficient 
potentially large economic costs to countries 
access to sanitation, education, health 
in the region, it is important to seek ways to 
and financial services is still enormous.48 
minimize these costs. For this purpose, region-
While economic growth is creating vast 
wide cooperative mechanisms could be the 
opportunities, growth alone is insufficient 
most effective, because of their effectiveness 
to correct the region’s huge socioeconomic 
in disseminating knowledge, sharing good 
and developmental disparities within and 
practices and supporting the build-up of 
between countries, and such disparities could 
capabilities across all countries in the region.
pose serious threats to national economic, 
social and political stability.
The three challenges of food insecurity, 
disasters and pressures on natural resources 
The fast economic growth of the last two 
are fundamental aspects of sustainability, and 
decades has been accompanied by rising 
are interrelated. The concept of sustainability 
inequalities, with the population-weighted 
implies that, at a minimum, the same degree of 
mean Gini coefficient for the entire region 
access to food, protection from disasters, and 
increasing from 32.5 per cent in the 1990s 
natural resources must be ensured for future 
to 37.5 per cent in the mid-2000s.49 These 
generations. To meet this enormous challenge, 
rising income inequalities are a manifestation 
it is critical to build capacities and promote 
of deeper inequalities in the access to 
technological innovations and research and 
fundamental resources, such as sanitation, 
development to improve eco- and resource 
education, health services, food security and 
efficiency. Technological innovations are 
electricity. Such access has tended to be more 
also needed to ensure food security through 
widespread in urban areas, where most of 
the development of sustainable agriculture 
the region’s development has been taking 
practices and to enhance the effectiveness 
place, leaving rural areas behind. At the same 
of monitoring and early warning systems to 
time, persistent disparities have continued 
reduce disaster risks. 
between women and men, and between 
different social and ethnic groups.50
To maximize the effectiveness of the region’s 
response to these interlinked challenges, the 
While it might appear that economic growth, 
creation of a region-wide body named “Asia-
like a tide that lifts all boats, would eventually 
provide employment opportunities for 
Pacific Technology Development Council” 
all, even the poorest and most deprived 
(APTECH), could be considered. APTECH 
segments of society, this is not necessarily 
would serve as a regional apex body of 
the case. Trickle down cannot be taken 
national innovation institutions. Its main 
for granted. First, economic growth in the 
functions would entail fostering innovation 
twenty-first century places a premium on 
that addresses shared problems and  educated individuals who are not only literate 
promoting cooperation in pre-competitive 
but also able to take advantage of modern 
research and development.  For that purpose, 
ICT effectively. When professionals and 
it could establish a regional innovation 
skilled workers are scarce in rapidly growing 
fund to finance joint innovation proposals, 
economies, their real wages tend to increase 
the intellectual property of which would 
significantly faster than average, contributing 
be owned by APTECH and shared among 
to increased income inequalities. Second, 
members. Such intellectual property could be 
there is much evidence that poverty and social 
subsequently made available to national and 
deprivations, such as the lack or insufficient 
regional enterprises for competitive research. 
access to basic sanitation, education or health 
129

services, play a large role in determining 
inflows of foreign direct investment per capita 
health outcomes – and, thus, the potential to 
during the period 2003-2010. The relationship 
engage fully in employment activities – across 
between these two variables is positive and 
the population.51
statistically significant. The countries in the 
bottom half of the distribution of the index 
Persistent poverty and inequality in the 
have an average cumulative foreign direct 
world’s most dynamic region represents, as 
investment (FDI) per capita of $415 over the 
argued in chapter one, a missed opportunity. 
period 2003-2010, compared to $1,065 for 
If the ”bottom one billion” inhabitants of 
those in the upper half of the distribution 
Asia and the Pacific had similar access to 
of the Millennium Development Goals 
sanitation, health, education and social 
capabilities index. The relationship between 
protection as the ”top three billion”, they 
social exclusion and FDI could be explained 
would be able to enhance the size of what 
by two possible factors: (i) the reduced size of 
is already the largest and most rapidly 
expanding market, contributing to sustaining 
the domestic market resulting from the lower 
growth in decades to come. Moreover, social 
purchasing power of the excluded; and (ii) 
justice considerations make the exclusion 
potential risks to social and political stability 
of a quarter of the region’s population from 
which could affect the return of FDI.
the fruits of its growing prosperity morally 
An important objective of regional economic 
unacceptable. Furthermore, social exclusion 
creates downside risks to stability and growth 
integration schemes is to narrow development 
itself. 
gaps and bring about convergence in the 
levels of economic development of different 
Studies on the relationship between poverty 
participants through the optimal deployment 
and violent conflict usually find that causality 
of the region’s resources. The objective of 
runs from conflict to poverty, but the reverse 
achieving a balanced and equitable regional 
relationship is not as clear. However, when 
development also creates conditions 
poverty coincides with ethnic, religious, 
for a more enthusiastic participation of 
language or regional boundaries, underlying 
all partners, including those with scarce 
grievances can explode into open conflict, 
productive capacities. Some studies suggest 
often triggered by external shocks, such as 
that increased trade by itself, even if balanced, 
a sudden increase in the price of food or 
does not ensure economic development. 
other necessities. The potential for conflict 
Thus, growth in trade must be accompanied 
is more likely when basic human needs, 
by complementary development policies 
such as the need for physical security 
to promote investment in infrastructure, 
and well-being, communal and cultural 
education and research and development in  
recognition, participation and distributive 
lower-income countries and less-developed 
justice are repeatedly denied, threatened, 
regions.
or frustrated, especially over long periods 
of time.52 According to the Commonwealth 
Many existing regional trading arrangements 
Commission on Respect and Understanding, 
include balanced regional development and 
remembered injustices, including those that 
social cohesion policies.55 For instance, the 
occurred decades, even centuries before, play 
European Union has extensive programmes, 
an important role in justifying and sustaining 
to support lagging regions through 
many conflicts.53
structural funds under the social cohesion 
policy. The Southern Common Market 
As shown in figure V.6, social exclusion appears 
(MERCOSUR) is considering proposals for a 
to have an adverse consequence on foreign 
regional social fund. SAARC has created the 
direct investment. The horizontal axis shows 
SAARC Development Fund which includes 
a Millennium Development Goals capabilities 
a social window to fund poverty alleviation 
index developed by ESCAP for the year 1990. 54 
programmes and projects, an infrastructure 
It measures the levels of country’s capabilities 
window to finance infrastructure projects, 
to provide services in the areas of health and 
and an economic window to fund other non-
education. The vertical axis shows cumulative 
infrastructure commercial projects.
130

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
FIGURE TITLE
V.6. 
Social exclusion in 1990 and foreign direct investment over 2003-2010
2 100
Median 0.62
RUS
1 800
2010 
GEO
MYS
R² = 0.43
MNG
 2003-
1 500
ita,
TUR
ARM
er cap rs) 1 200
SLB
VUT MHL
(US dolla  900
DI inflows p
CHN
TON
ive F
lat

KOR
 600
AZE
Median 465
VNM
JPN
WSM
Cumu
KGZ
 300
KHM
IRN
LAO
BTN
IDN
TJK
PAK
LKA
KIR
PHL
UZB
IND
NPL
BGD
 0
0.2
0.0
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
MDG index, 1990
Source: ESCAP based on data from the United Nations Statistics Division, Millennium Development Goals Indicators database.
Notes: The Millennium Development Goals capabilities index is a measure of the level of country’s capabilities to provide MDG-related services 
in the areas of health and education. For details on the construction of the index see Clovis Freire, “Measuring progress towards the MDGs: a 
capability-based approach”, Working Paper (Bangkok, ESCAP forthcoming).
Therefore, apart from special and differential 
income countries as well as less-developed 
treatment provisions in favour of developing 
regions of all member countries by investing 
and least developed coun-tries, which are 
in physical and social (education, training and 
normally incorporated in any trade liberalization 
health care) infrastructure. The fund could 
scheme, a broad and comprehensive regional 
also offer subsidies, incentives and technical 
economic integration scheme for Asia and 
support to producers based in these regions 
the Pacific should include other measures 
and promote technology transfer to enhance 
to assist lower-income countries, as well as 
their competitiveness. The fund could also 
lagging regions in all countries. Regional 
facilitate the provision of social safety nets 
development funds similar to the examples 
to groups adversely affected by regional 
mentioned above could be set up with 
trade liberalization. Among many socially 
contributions from member countries based 
desirable areas, invest-ments promoted by 
on an agreed pro-portion of their GDP. With 
this fund could aim at enhancing connectivity, 
a combined GDP of about $20 trillion, even a 
developing rural communities and agro-
0.1 per cent share would yield a sum of $20 
based industries, increasing agricultural 
billion per annum. Such an amount could be 
productivity, and supporting SMEs. The 
used to create three funds: the Asia-Pacific 
less developed regions, the main intended 
Regional Development Fund, the Asia-Pacific 
beneficiaries of the fund, should be identified 
Regional Integration Fund and the Asia-
on the basis of a measurable criterion, such 
as having a GDP per capita below certain 
Pacific Technology Development Fund. The 
threshold of the average GDP per capita 
proportion of the total to allocate to which 
for all the economies participating in the 
of the three funds could be 65, 20 and 15 per 
regional integration scheme. In addition, it is 
cent.
important that specific projects supported by 
The Asia-Pacific Regional Development Fund 
the fund be co-financed by local or national 
could be earmarked for uplifting lower-
governments in order to give them a financial 
131

stake in the outcome of the projects, creating 
4  ESCAP, 2009b.   
incentives for their effective implementation.
5  United Nations, “Hunger: Who are the hungry?”.  
The Asia-Pacific Regional Integration Fund 
Available from www.un.org/en/globalissues/briefing 
could provide financing to enhance con-
papers/food/whoarethehungry.shtml. 
nectivity between lower-income countries 
 
6  Ibid.
and the main markets in the region by linking 
highways, railways, and ports.  This fund 
7  FAO, 1996.  
could also provide financing in areas related 
to  ICT, broadband, the use of satellites, trade 
8  United Nations, 2009, p. 27.  
facilitation, electronic data interchange and 
9  ASEAN, 2009a.  
radio frequency identification (EDI/RFID), 
harmonization of customs and conformity 
10  United Nations, 2009. 
procedures. Financing from the fund should 
normally stimulate private investments in the 
11  SAARC, 2009.  
beneficiary countries. Thus funding from the 
12  FAO and SAARC, 2008. 
fund should be limited to a maximum of 30 
per cent of the total project cost.
13  SAARC, 2011.
The Asia-Pacific Technology Development 
14  Food Secure Pacific, 2010.  
Fund could provide assistance to joint research 
15  Cokanasiga, Keil and Sisifa, 2011.  
and development programmes of Asia-Pacific 
enterprises based in a least two countries, one 
16  As of February 2010, the 25 members of the 
of which should be a developing country. The 
commission were Afghanistan, Australia, Bangladesh, 
fund would be administered by APTECH, as 
Bhutan Cambodia, China, Fiji, France, India, Indonesia, 
proposed above. An important objective of 
the Islamic Republic of Iran, Japan, the Lao People’s 
Democratic Republic, Malaysia, Myanmar,  Nepal, 
this fund could be to assist enterprises based 
New Zealand,  Pakistan, the Philippines, the Republic 
in relatively lower-income countries of the 
of Korea, Sri Lanka, Thailand, the United Kingdom of 
region in accessing modern technologies 
Great Britain and Northern Ireland, the United States of 
and developing productive capacities. The 
America and Viet Nam.
assistance from the fund could be limited to 
17  ASEAN, 2011b. 
50 per cent of the total project cost.
18  Alene and Coulibaly, 2009; Timmer, 2005; World 
With these steps accompanying the pro-
Bank, 2008; ESCAP, 2012.  
grammes of regional economic integration, 
regionalism in Asia and the Pacific would 
19  APAARI, 2010. 
hopefully become a model of an inclusive, 
balanced, equitable and participatory deve-
20  World Business Council for Sustainable Development 
and the International Union for Conservation of Nature, 
lopment process for other regions to emulate.
2008. 
21  ADB, 2007b.  
22  Ibid. 
23  FAO and SAARC 2008.  
 
ENDNOTES

24  UNISDR, 2012. 
25  ESCAP and UNISDR, 2010, p. 36; ESCAP, 2012. 
1  Asia Society and International Rice Research 
Institute, 2010.   
26  ESCAP, 2011f.  
2  Hazell, 2009.  
27  See Thailand, Office of the National Economic and 
Social Development Board, 2012; Thailand, Ministry of 
3  United Nations, 2011.  
Finance, 2011.  
132

CHAPTER  FIVE
Economic cooperation for addressing shared vulnerabilities and risks 
28  ESCAP, based on International Energy Agency, 2011.  
44  Global Climate Network, 2009.
29  ESCAP, 2012.
45  Schneider and others, 2008.  
30  ESCAP, ADB and UNEP, 2010.  
46  Parthan and others, 2010.
31  UNEP, 2011. 
47  Ibid.  
32  ESCAP, 2011d. 
48  ESCAP-ADB-UNDP, 2012.
33  UNEP, 2011. 
49  ESCAP, 2012.   
34  UNCSD, 2011.  
50  ESCAP-ADB-UNDP, 2012.
35  ESCAP review of official submissions of member 
51  Commission on Social Determinants of Health, 2008.  
states to the UNCSD secretariat.
52  Ocampo, 2004.   
36  ESCAP, 2001, part three.  
53  Commonwealth Commission on Respect and 
37  ESCAP, 2005, annex III.  
Understanding, 2007.   
38  ESCAP, 2011d, chapter I, section C.  
54  The ESCAP MDG capabilitites index is calculated 
by considering different levels of MDG attainment as 
39  Brenner, 2009.  
different deliverables requiring specific capabilities to 
be produced and by applying the method proposed by 
40  Ibid.
Hidalgo and Hausmann, 2009, to measure the level of 
capabilities available to countries to produce them. For 
41  Available from www.osdd.net (accessed 1 February 
details see Freire, 2012.
2012).
55  See Yeats and Deacon, 2006, for a review of different 
42  Chesbrough, 2003. 
RTAs.  
43  Ockwell, Watson and Macherron, 2008.    
133


Photo by John Isaac
134


CHAPTER  SIX
Towards an inclusive and sustainable Asia-Pacific Century
UN Photo 
135


Towards an 
Six
inclusive and sustainable 
Asia-Pacific century
A compelling case exists for deepening and 
broadening economic cooperation in the Asia-
Pacific region and to move forward towards the 
formation of an economic community of Asia 
and the Pacific as a long-term goal. The four-
pronged action agenda outlined in this study 
covers trade and investment, connectivity, 
financial cooperation and cooperation for 
addressing shared risks. The region will need 
an elaborate institutional architecture to move 
ahead with this ambitious agenda.

In the preceding chapters, it was argued that 
fostering regional economic integration would be 
critical to sustain growth in Asia and the Pacific 
because, burdened by huge debts and global 
imbalances, the advanced economies of the West 
are no longer able to play the role of engines of 
growth for the region that they played over the 
past 60 years. However, the region does not need 
to look very far to find new sources of aggregate 
demand. Regional developmental challenges, 
such as poverty and wide disparities in social 
and physical infrastructure, can be turned into 
opportunities for sustaining growth in the future. 
The region’s “bottom billion”, if lifted out of pov- 
erty and allowed to join the mainstream of the 
region’s consumers, could help sustain growth in 
Asia and the Pacific – and the world at large – in 
decades to come. In addition, if all countries of 
the region were connected seamlessly by closing 
development gaps in physical infrastructure and 
adopting best practices in trade and transport 
UN Photo 
facilitation, lagging economies would be able to 
access the largest and most dynamic markets in the 
world, boosting their business and employment 
opportunities. 
136

CHAPTER  SIX
Towards an inclusive and sustainable Asia-Pacific Century
The four-pronged action agenda for  Ministerial councils on trade and investment, 
enhancing regional economic integration in 
finance, transport, energy, food security 
Asia and the Pacific proposed in this study 
and agriculture, environment, disaster risk 
could contribute not only to sustaining 
reduction and technology: These ministerial 
the region’s dynamism, but also to making 
councils would  develop specific agendas of 
its development process more inclusive 
work for each sector. In a number of cases, the 
and sustainable. The agenda entails: (i) the 
ministerial councils would actually replace 
formation of a broader integrated regional 
the ad hoc ministerial conferences that 
market; (ii) seamless physical connectivity 
ESCAP organizes on some sectors such as 
across the region; (iii) financial cooperation 
the environment (every five years), transport 
for closing the development gaps; and (iv) 
(every two years) and disaster risk reduction 
economic cooperation for addressing shared 
(every two years). In addition, these ministerial 
vulnerabilities and risks. This agenda could be 
councils would give direction and operative 
instrumental in the realization of an inclusive 
instructions to respective senior officials 
and sustainable Asia-Pacific century, in which 
meetings. 
the region would not only be free from 
poverty and hunger but also continue to 
Committees of Senior Officials: In each sector, 
prosper in a sustainable manner, meeting its 
there would be Committees of Senior Officials 
needs without compromising the interests of 
to implement the mandates given by the 
future generations. A dynamic, inclusive and 
respective ministerial councils.
sustainable Asia-Pacific region could become 
an effective locomotive to support economic 
A Consultative Committee of Subregional 
growth in the rest of the world, contribute 
Associations: It will bring together all 
to fostering peace, and exercise influence 
subregional bodies, such as the Association of 
in global economic governance to a degree 
Southeast Asian Nations (ASEAN), the South 
that is  commensurate with its rising economic 
Asian Association for Regional Cooperation 
weight.
(SAARC), the Bay of Bengal Initiative for Multi-
To be sure, the proposed agenda is ambitious, 
Sectoral Technical and Economic Cooperation 
and it would require an extensive institutional 
(BIMSTEC), the Economic Cooperation 
architecture for decision-making, consensus 
Organization (ECO) and the Pacific Islands 
building, operationalizing it across sectors, 
Forum (PIF), of the region to facilitate mutual 
and implementing it throughout the region. 
learning. It would meet annually at the 
The following is an outline of a possible 
sidelines of APES.
institutional architecture, which draws upon 
the experiences of various regional economic 
People-to-people contacts: The programme 
integration schemes from across the world.
of regional economic integration would not 
be able to  exploit its full potential without the 
Institutional architecture
people of the region coming together with 
their peers. Regional professional associations 
The institutional architecture could include 
are  needed to organize such interactions 
the following elements:
for all different professions. Two proposed 
associations that would be very critical are: 
The Asia-Pacific Economic Summit (APES): As 
the highest level body, APES would  be tasked 
i.  An Asia-Pacific business advisory council,  
with setting up the region’s agenda and 
which would help mobilize the business 
providing direction for its implementation 
community to exploit the full potential 
among member countries. It would adopt a 
of regional economic integration, and 
long-term vision for an economic community 
ii.  An  Asia-Pacific network of think tanks, 
of Asia and the Pacific and its contours, reflect 
which would bring together research 
on global challenges and global affairs and 
institutes across the region that conduct 
the region’s response, cooperate with other 
studies and recommend evidence-
agencies and international organizations, and 
based policy alternatives to maximize 
meet annually. 
the benefits from regional economic 
137


integration in Asia and the Pacific. These 
The way forward
groups would meet annually at the 
In December 1963, the First Ministerial 
sidelines of APES.
Conference on Asian Economic Cooperation, 
Secretariat
held in Manila under the auspices of the 
Economic Commission for Asia and the Far 
The elaborate institutional architecture pro-
East (ECAFE) as ESCAP was known then, 
posed above would need a secretariat to 
endorsed a proposal to establish a regional 
service it. The ESCAP secretariat, in view of its 
development bank for Asia to supplement 
multidisciplinary nature, could play that role 
World Bank activities aimed at assisting the 
and should be strengthened for that purpose 
countries in the region in their efforts to 
to provide secretariat services to APES, 
rebuild their economies as they came out of 
ministerial councils and their senior officials 
the yoke of colonialism and the Second World 
level operational bodies. 
War. Three years later, the Asian Development 
Bank was born. 
In addition, the ESCAP secretariat should work 
closely with other regional and subregional 
Nearly half a century later, the Asia-Pacific 
organizations, such as the ASEAN Secretariat, 
region is once again at such a juncture in 
the SAARC Secretariat, the ECO Secretariat, the 
its evolution. In the aftermath of the global 
PIF Secretariat and the to be opened BIMSTEC 
economic and financial crisis it has become 
Secretariat, among others, to coordinate the 
clear that business as usual is no longer an 
programmes of regional economic cooperation 
option and that it is necessary to look for 
and integration.  It should also strengthen its 
alternative ways and means to sustain the 
partnership with the Asian Development 
region’s  dynamism. The ESCAP Commission 
Bank, which is another regional development 
should seize this moment to convene the Asia-
organization with overlapping membership 
Pacific Ministerial Conference on Regional 
and which is committed to regional 
Economic Cooperation and Integration 
economic integration, especially in areas 
in 2013 not only to celebrate the fiftieth 
such as  financial cooperation, infrastructure 
anniversary of the earlier conference but 
development and connectivity, trade  also to review and consider possible ways to 
facilitation, environment and technology 
implement the recommendations contained 
development. 
in the present study and chart out a road map 
to grow together for shared prosperity and 
for an inclusive and sustainable Asia-Pacific 
Century!
UN Photo 
138


Annex
Technical notes
Photo by Farzana Hossen Mipu
139





Annex: Technical notes
i. 
Estimates of regional trade flows
The forecast trade flows for the period 2011-2016 shown in figure II.1 are based on estimates 
of regional trade flows using the gravity equation. The upper forecast is based on a model that 
includes a time trend, namely
,
where   are the logarithms of exports from region i to region j in year t,  and   are the 
i j t
i t  
j t
logarithms of the GDPs of regions i and j in year t, and ε  is a non-observable error term. The 
i j t
coefficients β  capture unobserved and time-invariant factors unique to exports from region i 
i j
to j, such as geographical distance or trade costs. This model was estimated for the period 1993-
2010 using data from the International Monetary Fund, Direction of Trade Statistics and the United 
Nations Statistical Division, National Accounts Main Aggregates database. The upper forecasts 
were calculated using the estimated equation
,
for the years 2011-2016 based on GDP forecasts from the International Monetary Fund, World 
Economic Outlook database. 
It is important to keep in mind that the estimate coefficient for the time trend 0.1821, or 1.8 per 
cent, per year, is based on trade data for a period of fast-increasing commodity prices. If these 
trends continue during the forecast period, the forecasts will be accurate, but this is uncertain. For 
that reason a more conservative, lower forecast was also considered in order to provide a range 
of possible future trade values. The more conservative forecast is based on the following model
,
which includes time effects   instead of a time trend, and was estimated as
For the forecast period, the estimated time effects β were set to zero, which is their average value 
t
during the estimation period. In other words, these lower forecasts assume no time effects (neither 
positive nor negative) for the period 2011-2016.
140


Annex
Technical notes
ii. 
Export opportunities indicator
The export opportunities indicator is a type of overlap indicator designed to measure the degree 
to which competitive exports of one country match the expanding import markets of another. 
A higher degree of export opportunity indicates more favourable prospects for trade expansion 
given the past rate of growth of the import markets and the revealed comparative advantage of 
the export country. The indicator is scaled so that it can be interpreted as the potential annual 
increase in the size of the export market – measured in billions of United States dollars – of each 
country vis-à-vis each of its trading partners.
The 
indicator 
is 
defined 
as 
 
        
for all i such that 
t
RCA 1 >1 and zero otherwise, where s is the source country, d is the destination 
 
    
is
country, i represents industries, m represents imports in billions of United States dollars,  is the 
0
base period and  ( > ) is a more recent period, M represents global imports by all countries in 
1
1

all products in billions of United States dollars, and                   is the indica
t
RCA 1
tor of revealed comparative 
is
advantage of country s in industry i in the period . The latter is defined as the share of industry 
1
i in the exports of country s divided by the share of industry i in global exports. The export 
opportunities indicator was calculated for 40,940 pairs of export/import countries involving 231 
economies and using trade data from the United Nations Commodity Trade database (COMTRADE) 
for the periods 1996-2000 and 2006-2010. The trade data used were classified according to the 
Standard International Trade Classification (SITC) rev2 at the 4-digit level.
The export opportunities indicator captures the recent dynamics of specific export markets from 
the perspective of each exporter. If imports of industry i expand significantly in country A and 
if country B has a revealed comparative advantage in industry i, this means that country B has 
potentially profitable export opportunities in country A. The indicator adds up the estimated 
annual increase in imports of country A for all the industries in which (i) the share of imports 
in total world imports has increased between the two periods and (ii) country B has a revealed 
comparative advantage. Of course, this increase in export opportunities is not going to exclusively 
benefit country B because there are other countries with a revealed comparative advantage in 
some of the same industries as country B. Nevertheless, it is easier for exporters to enter and 
expand sales in a growing market than in a stagnant or declining market. Thus, the indicator 
provides useful information about future potential increases in bilateral trade.
To provide a more concrete example of the construction of the indicator, consider the electronic 
microcircuits industry (SITC 7764). Between 1996-2000 and 2006-2010, China increased its share in 
the world’s imports of electronic microcircuits by 0.7013 per cent. Thus, on average China increased 
its share in the world imports of electronic microcircuits by 0.7013 / 10 = 0.07013 per cent per year. 
Multiplying this number by the value of global imports for 2010, $13 trillion, a value of $9.2 billion 
is obtained. In other words, imports of electronic microcircuits to China has been increasing by 
almost $10 billion  per year. On the other hand, the value of the indicator of revealed comparative 
advantage for electronic circuits during the period 2006-2010 is 14.8 > 1 for the Philippines. As 
shown in table II.3, the total value of the indicator for exports of the Philippines to China is $27.6 
billion. The value of $9.2 billion calculated above is part of this indicator value. It is obtained by  
adding the value of other industries for which (i) imports to China have grown faster than global 
imports and (ii) the Philippines has a revealed comparative advantage indicator greater than one.
One caveat to keep in mind is that the indicator does not take into account transportation and 
trade costs. In other words, an exporting country, such as country B, could have great export 
opportunities in country A, but it could be too expensive for exporters in country B to take 
141

advantage of them. Nevertheless, the indicator provides guidance on which trade partnerships 
could be most desirable, a useful first step which should be followed by an analysis of the obstacles 
and necessary policy measures to facilitate such partnerships.
iii. 
Computable general equilibrium simulations
The analysis of the potential gains to trade from broader agreements is based on computable 
general equilibrium (CGE) simulations using the Global Trade Analysis Project (GTAP) model. The 
structure of the model is a standard, multi-region CGE, discussed in detail in T. Hertel, ed., Global 
Trade Analysis: Modelling and Applications, Cambridge: Cambridge University Press,1997. The 
database used in the simulations is GTAP7.1 with base year 2004, the latest available at the time 
of writing. The database was updated to 2010 using a static projection based on labour growth 
rates, changes in the skilled/low-skilled labour composition, and capital accumulation. Total factor 
productivity was determined residually based on GDP. Applied tariff rates were also updated.
The simulations conducted were based on comparative static techniques. These have the 
disadvantage relative to dynamic techniques of not describing the time-path. In other words, the 
analysis focuses on the end outcomes rather than the transition to that outcome. However, this 
disadvantage is countered by the reduced degree of computational complexity, which allows the 
consideration of a larger number of potential scenarios and a greater level of sectoral and regional 
disaggregation, while still addressing the primary questions. The results  should be interpreted 
as indicating how these economies would differ, relative to the updated 2010 equilibrium, after 
all adjustments in response to the liberalization have taken place, under the assumption that the 
trade arrangements being simulated have been implemented.
In each scenario, trade liberalization is modelled as a removal of all tariffs on merchandise trade. 
Thus the simulations represent upper bounds of the liberalization that could potentially take place, 
since, in practice, agreements provide for the exclusion of some products, notably agricultural 
products, as well as extensive phase-in periods for the elimination of tariffs on other products. 
The trade facilitation scenarios are implemented as a positive shock to the productivity of the 
transportation sector at the bilateral level for the countries engaged in liberalization. The shock 
applies to all goods and is assumed to affect all trading partners in both directions. In order to 
capture the potential gains from moving toward best practices, the size of the shock is proportional 
to ESCAP measures of comprehensive trade costs net of known tariffs. Both a medium-run closure, 
which captures the effects of resource reallocation, and a long-run closure, designed to capture 
potential dynamic gains from capital accumulation, are implemented.
As with all CGE studies, the modelling cannot capture all possible economic effects that can matter. 
A limitation of the modelling approached employed in this study is that it assumes perfectly 
competitive markets throughout, as in most CGE studies. Studies that do incorporate imperfect 
competition tend to generate welfare estimates that are roughly double those of competitive 
models.1 Hence, the estimates presented here are probably conservative.
Another reason that the model results are probably conservative is that only merchandise trade 
liberalization is considered. However, while many new regional trade agreements do contain 
provisions for liberalizing trade in services, it is not always clear to what extent they are effective. 
In addition, the mechanisms for incorporating services trade liberalization into CGE models are 
still unsettled. One possibility is to use tariff equivalents, but it is not clear that services trade 
barriers really affect trade in the same way as tariffs affect merchandise trade.2 Some authors 
argue that it is better to model the impact of services trade liberalization in terms of productivity 
enhancement. One example is work conducted by Dr. Phiippa Dee, whose research on the APEC 
economies indicates productivity gains in the region of 2 to 14 per cent.3 In summation, to the 
extent that can be realistically assumed that effective service trade liberalization will in fact be part 
142


Annex
Technical notes
of the agreements under consideration, the results presented in this study probably understate 
the potential benefits. This will be an useful area for future research.4
iv. 
The IDE Geographical Simulation Model
The Geographical Simulation Model of the Institute of Developing Economies (IDE) is based on data 
for 1,699 regions in 15 Asian economies: Bangladesh; Brunei Darussalam; China; India; Indonesia; 
Japan; Lao People’s Democratic Republic; Malaysia; Myanmar; Philippines; Singapore; Thailand; 
Viet Nam; Hong Kong, China; and Macao, China. The data for the model include (i) estimates of 
arable land area, population and regional gross domestic products (RGDP) for each region based 
on official statistics for the year 2005, (ii) currently available highways, railways, sea shipment, 
and air shipment routes, and (iii) estimates of border cost measures, such as tariff rates, non-tariff 
barriers, other border clearance costs and transhipment costs. The model is useful for studying the 
dynamics of the location of population and industries over the long term, and for simulating the 
economic impacts of specific infrastructure projects at the subnational level for all the countries 
in the region.
In the model, the state of physical transport infrastructure of various land routes is operationalized 
by making assumptions about the average speeds at which vehicles can circulate. For instance, in 
the baseline scenario, the average land transport speed is set at 38.5 km/h in all routes with the 
exceptions of (i) Thailand, Malaysia and Singapore, where road networks are well developed and 
the average speed is set at 60 km/h, and (ii) Eastern India (the provinces of Arunachal Pradesh, 
Assam, Nagaland, Manipur, Mizoram, Tripura, Meghalaya and Sikkim) where, considering the 
mountainous terrain, the average speed is set at 19.25 km/h. In addition, the baseline scenario 
assumes that the average time and monetary cost of crossing national borders are13.2 hours 
and $500 per container, respectively, and that through traffic in Myanmar and Bangladesh is not 
allowed. 
FIGURE TITLE
A.1. 
Interpreting simulation results
Source:  S. Kumagai, 2012.
143


Three alternative scenarios are considered, namely (i) construction and improvements in physical 
infrastructure, (ii) the implementation of custom facilitation measures, and (iii) permitting through 
traffic in Myanmar and Bangladesh. The first one is operationalized by setting the average speed 
of land transport at 60 km/h in the routes considered. Under the second scenario, the time and 
monetary cost of crossing national borders are lowered to two hours and $100 per container, 
respectively. Under the third scenario, through traffic is allowed in both Myanmar and Bangladesh.5
The simulations are run for a period of 25 years, between 2005 and 2030. Data on already completed 
projects until 2010 are incorporated into the model and additional development projects to be 
simulated are added in 2015. The net gains reported in figure A.1 are the differences between the 
baseline and the simulated scenario in the last year of the simulation period, 2030.  
Endnotes
1  See, e.g. Scollay and Gilbert, 2000; Gilbert and Wahl, 2002; Francois and Martin, 2010.
2  See, e.g. Fontagne, Guillin and Mitaritonna, 2010.
3  See, e.g. Dee, 2010.
4  For more details see Gilbert, 2012.
5  For more details see Kumagai, 2012.
ield
ren F
ar
W

o b
Phot
144


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145
Photo by Warren Field


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