It has been now more than ten years, since the North American Free Trade Area (NAFTA hereafter) had formally launched in 1994. Although it is not yet clear that NAFTA had provided economic prosperity that was promised, the launch of NAFTA ten year ago had a huge impact enough to change the shape of world trade regime. In fact, there were ever more increases in the number of regional trade agreement around the world after 1994. Especially in Asia, where the regional trade agreements were not traditionally welcomed, a sudden blossom of talks on free trade agreement are noticeable. Japan and Singapore were the first in the region to make such an arrangement. Korea followed the suit by negotiating and concluding FTA with Chile, Singapore, and recently with ASEAN. Although it is suspended over the agricultural market opening for now, Korea and Japan are officially negotiating the FTA between themselves. China also introduced similar agreement with Hong Kong and Macao and now concluded FTA negotiation with ASEAN, Chile, and Pakistan. It certainly looks like a battle to take a regional economic initiative. Worrying competitions among Asian countries and that against western economic blocks such as NAFTA and EU, some suggests Asia-wide trade arrangement so that it can function as a harmony scheme among them and a strategic cooperation toward outside.

The main focus of this paper is to draw lessons from ten years experience of NAFTA to the Northeast Asian Economic Integration.

In this paper, it is argued that the leadership of the U.S.,motivated both by economic and political concerns, played a greater role in pushing for NAFTA. Facing the growing competition with other continents, especially with Asia, the U.S. need to secure both economic and political ties with its two neighbors. In return, the U.S. had to give carrots to Canada and Mexico in the form of what they wanted. For Canada, it was the restructuring of their industries into more high tech sectors. For Mexico, it was the promise of helping them to modernize their industry and to fight against its chronic poverty. To give these economic benefits to its neighbors, the political leadership of the U.S. also had to have a support from its own industries. This paper identifies the automobile and electro industries as the critical players in supporting the idea of NAFTA in the U.S. They were the industries that had faced the fiercest competition from East Asian countries, such as China, Japan, and Korea. Although the overall economic performance of NAFTA for its member countries seems not that brilliance, we need to look at the performance of the core industries that supported NAFTA in the process. The automobile and electro industries certainly had benefited from NAFTA, while Canada and Mexico restructure their industries into the direction that they wanted.

In light of the findings in this paper, the current situation in Northeast Asia is very different from what North America was ten years ago. First of all, there is no outstanding leader like the U.S. in North America. While China and Japan compete each other for the position of the leader, Korea also wants to take a significant role of their own. Furthermore, it is not clear what they can give each other. Considering the fact that Japan, Korea, and even China have been pursuing a similar economic development strategy and they are now competing each other in almost every industrial product category in the world export market, it seems not possible to devise a scheme to satisfy major players in the national as well as in the industrial level. Therefore, it seems not possible to see the Regional Economic Integration Scheme in Northeast Asia at least in the near future.

Therefore, it is rather much more practical to discuss the possible steps to lessen the tensions within this region first. Fortunately, we see some areas of possible collaboration among these countries and particularly among industries. At the industry level, as three countries compete against each other, these countries are now suffering over capacity problems in many industries. As those industries need to be restructured, there are chances for them to collaborate. At the national level, another area of collaboration is to dissolve the trade imbalances among Korea, Japan, and China. In fact, Korea recorded a huge trade deficit with Japan, while earns a large surplus from the trade with China. Interestingly, Japan runs a big trade deficits with China and this makes a kind of chained linkage among these countries. It is different from the NAFTA countries, where the U.S. runs huge trade deficits with both of its partners. In the case of NAFTA, the U.S. bears the huge burden of running trade deficits. However, in the Northeast Asia, countries should share the burden among them. Although each country runs trade deficits from the bilateral point, the three countries involved are in balance in the sense that trilateral trade imbalances are chained. This provides possibilities for the collaboration at the national level in helping industries to restructure. one potential solution, for example, is to boost direct investment in the opposite direction to the trade overflows.

Not only in terms of the economy, but also in terms of the politics, the three nations in the Northeast Asia should cooperate each other to improve the chance of realizing the regional economic integration in the near future. North Korea often has been a huddle blocking the progress in regional economic cooperation. In recent days, the South has tried to persuade and help North Korea to develop its economy and to open for the international trade regime. However, Korea alone finds it is difficult to help them to come out of the long time isolation from the free world trade. The additional helps from China and Japan could make it easier for the North Korea to transit into the free trade world and this could subdue the military tensions in the region. Likewise, the tension between China and Taiwanese territories could be lessened with more active trades within the region. Other areas of potential cooperation among the nations in the region are energy developments and environmental protections. With these kinds of cooperation in the base level should be tried first and, if they are proved to be successful, the progress in the regional economic integration in the Northeast Asia might be realized sooner than expected.

Although it has been discussed that the way to improve the chance for the progress in the regional economic integration, it could be long time before such a dream to be realized. However, in a so-called nutcracker situation, Korea has no time to waist in waiting for such an event to be unfolded. In other word, Korea needs to do action of its own at the moment. Therefore, Korea should find a way to help restructure its economy from other sources. If regional FTA with Japan and China altogether is a remote possibility, Korea should go with the bilateral agreement with Japan and China seperately. Considering the rivalry between Japan and China for the regional economic hegemony, the FTA with Japan may encourage China to begin negotiation for the bilateral FTA with Korea. In that way, Korea may be able to enjoy the benefit of regional trade integration without the formal East Asian wide agreement. Of course, this may also induce early launch of the formal regional agreement. With the same reason, it should be welcomed that Korean government recently started the bilateral FTA negotiation with the U.S. If successful, Korea will suddenly become a runner in the front group for the FTA race not only in the Asian region but also in the world. Again, this may induce Japan to speed up the bilateral FTA negotiation with Korea that is currently suspended over the issue of agricultural market access into Japan.

Often neglected in the discussion of the FTA issues are negotiations within the country. For the NAFTA cases, political leaders were able to secure support from the business sector at the earlier stage and, as we knew from the fact that the deal successfully endorsed by the legislative body of each government, they finally won the support from their own people later. In Korea, however, the process of winning the public support for the FTA is often postponed until very later stages. As it was known from the passage of the FTA with Chile in the national assembly, it would be very costly as times went by. Therefore, it is very important to win the public support from the earlier stage. We have already seen the sign of very strong oppositions to the recently announced FTA negotiation with the U.S. This is not good news for Korea to go into the long process of economic restructuring of its own, in the way that was described in this article. However, people in Korea should understand it is not only for the trade but also for the economic survival of the entire nation. It is, not just for a certain group of industries, but also for the majority of people who are consumers as a whole. There should be more efforts by the leaders in politics, in government, in academia, in business, and in public opinion making to orchestrate the campaign for the national restructuring. They need to have better communication channel and information-sharing scheme to reduce the cost in dealing with whom, want to stay in the safely protected status quo situation. That way, Korea should survive in the increasingly competitive environments of the twenty first century.