East Asian Regional Integration: Moving Toward an Asian Union or Growing Even Further Apart?
by Hannah Anderson
The topic of East Asian economic and political integration has been a hot topic of discussion over the past fifteen years. Stemming from the Asian financial collapse in the late 1990’s, pressure for the region to band together to support one another has increased through to the present. Reviewing the lingering effects of the 1997–98 Asian crisis, China’s expanding role in the region, and the evolution of regional institutions gives an outside observer a window into the potential of greater regional collaboration on an economic and political level in Eastern Asia. This background sets the stage for an exploration of forms of regional cooperation, which could emerge without damaging the progress already made through the region’s limited cooperation. This analysis aims to explain the political factors at various levels that have thus far shaped the institutional form of East Asian regional economic cooperation; in particular by examining the three essential aspects of regionalism derived from an analysis of the European Union (EU).
The EU forms what is arguably the most advanced and successful example thus far of regional institution building. Building this regional union required three essential conditions to support regionalism to be met.(i) These three key aspects divvy the theories of ‘regional institution building’ into a roadmap for enhancing regional unity. The first aspect prescribes the regional union as deserving of power, stating that at some level governments must be willing to compromise sovereignty and political autonomy for the sake of regional cooperation. The second states that the region must create mechanisms through which the “losers” and the “weak” within a country or region are compensated for losses incurred from increased openness. The third requires a clear definition of which members can, and should, benefit from such mechanisms.(ii) These three elements are useful in furthering regional cooperation and institution building by creating a roadmap for removing resistance and obstacles that work against functional spillovers. As this analysis focuses on Eastern Asia, formally defining the region is useful. Herein, East Asia is considered to be the Association of Southeast Asian Nations (ASEAN) Plus Three, the People’s Republic of China, Japan, and the Republic of Korea.(iii) Amongst these nations, political factors have thus far most shaped the existing institutional forms of cooperation, particularly in the three essential aspects of regionalism.
The more formal regional cooperation becomes, the number of legally binding agreements increase, and the more governments have to compromise their sovereignty and policy autonomy in favor of the regional effort. From the Treaty of Rome (in 1957) to the Maastrict Treaty (in 1994), Europe has widened and strengthened the legal agreements to unite the region through movements in goods, to movements of services, people and business, to uniting the macroeconomic and monetary policies.(iv) The same sort of progress has not been made in uniting the East Asian nations into a single trading framework, and without these sorts of binding agreements, countries will find it difficult create a regional framework with any authority. These sorts of formalized structures put in place an official regional policy to determine how to compensate the losers from greater openness to trade with neighboring countries, fulfilling the second aspect of regional institution building.(v) But to negotiate these conditions, the region must first reach a consensus on the third prong: which groups should be protected under a regional trading framework, and how to go about doing so.
In the aftermath of the Asian financial crisis, efforts to provide an institutional base for regional financial cooperation developed very quickly in East Asia. Te experience of the crisis prompted these efforts, which aimed to make sure that such a financial disaster would never happen again.(vi) Despite all three aspects of regional architecture being essential for securing maximum stability in the region, the progress made thus far has fallen short of creating an EU-type regional monetary unit. Tough three types of crisis protection funding exist in East Asia, they each currently sit in various levels of underdevelopment.(vii) The process of emergency currency swaps under the Chiang Mai Initiative (CMI) has become the most institutionalized of the three, while the Asian Bond Market Initiative (ABMI) and Asian Bond Fund (ABF) are each separately moving forward slowly and informally.(viii) There is currently very little movement in the area of monetary and currency cooperation in the form of an Asian Monetary Union or an Asian Currency Unit (ACU). The creation of an Asian bond market requires both issuers of bonds and investors in those bonds.(ix) Te nations of Eastern Asia have thus far seemed unwilling to take on the responsibility of issuing and insuring these bonds. Thailand’s ex-Prime Minister, Taksin Shinawatra, proposed in 2002 that the members of ASEAN Plus Three contribute 1% of each country’s respective foreign exchange reserves to launch a regional fund to purchase Asian bonds. The Executives’ Meeting of East Asia Pacifc Central Banks adopted the idea as they set up the ABF, which was formally announced in June of 2003.(x)However, East Asian monetary regionalism stops here. A discussion on convergence criteria or explicit macroeconomic policy coordination, which would be necessary to manage stable exchange rates among the countries whose capital movement is relatively free, has not taken place. Moreover, the push for currency unity in the region has not yet converged into concrete actions.(xi) These criteria must be met fully by the region’s countries in order for an effective regional union to form. As it stands—though many within and outside the region make the case for greater integration—an East Asian Union is a long way off.
Over the past decade East Asia has engaged in constructing numerous mechanisms to enhance regional cooperation in the areas of trade and finance. However, the region’s economic architecture exhibits certain idiosyncrasies, such as an eclectic institutional structure and a limited level of commitment shown by its members. These idiosyncrasies have prevented regional cooperation from becoming deeper and more coherent, despite efforts by the private sector to establish such cooperation.(xii) Eisuke Sakakibara and Sharon Yamakawa, two World Bank economists, describe the region as “both a global and intraregional heterogeneous” community.(xiii) Te countries of East Asia trade heavily with each other, directly invest across borders, and cooperate loosely on financial and monetary aspects in the region.
One sticking point of cited by experts to further collaboration in the region is how the dynamic in the region has changed in the last decade with China’s emergence as the region’s most powerful economic player. Since China’s ascension to its current economic stature, many would argue that formalizing an East Asian cooperative union has become impossible without China.(xiv) Many observers of East Asian regionalism have reached a similar conclusion, emphasizing the limits of regional cooperation. They argue that because of the historical mistrust between the two regional powers, China and Japan, exclusive East Asian regional cooperation is doomed.(xv) As tensions between these two seem to be growing each day, their cooperation on a regional economic union is unlikely.
With respect to an emerging trade bloc, the rise of “Factory Asia” triggered strong interest in the free trade area in East Asia, as production and business networks expanded throughout Southeast Asia.(xvi) Obviously, the Asian financial crisis has made Asian leaders realize the inadequacy of the region’s financial cooperation. The lack of an overarching regional trade regime strengthened the push for strong bilateral free trade agreements (FTA) in East Asia since the late 1990s as well.(xvii) According to Victor L. L. Chu, the Chairman and Chief Executive Ofcer of First Eastern Investment Group, a Member of the Foundation Board of the World Economic Forum, such cooperation is essential for an effective regional economic structure. He warns of the folly of building a regional union without equal participation, saying, “We have to accelerate regional cooperation and coordination. Knowing all the constraints of the global market, ASEAN Plus Three (South-East Asia along with China, Japan and South Korea) is the minimum. ASEAN is too limited to be the third leg of the stool. ASEAN Plus Three will stand a chance to create a powerful enough trading bloc.”(xviii)
Looking forward, the creation of an East Asian Economic Union faces three major challenges. With respect to financial issues, the clearly defined member governments have shown resistance to compromise their respective national macroeconomic policy autonomy. Furthermore, regional trade cooperation dialogue so far has failed to address how to redistribute economic gains to those who stand to lose during the process of integration. Before these countries can determine any sort of redistribution, economic maturity among these East Asian countries is necessary to determine the stable platform from which to find the losers from greater trade openness.(xix) Along with the global trade and financial challenges that would disrupt the region’s economic growth and stability, the desire for mutual economic stability is fundamental in motivating the governments to establish regional arrangements. For students of regionalism, perhaps the biggest lesson is that crises can pull countries together as well as push them apart. Leaders in East Asia are not currently as responsible for the economic fates of their neighbors as their European counterparts, but that could drastically change in the coming years. In order to pursue closer linkages, these countries will have to make peace with giving up some of their autonomy for the sake of monetary unity, and open up their markets to competition from their neighbors instead of simply making bilateral agreements. Therefore, current expectations about East Asian regionalism are rather modest. The preliminary conclusion of this look into the possibility of Asian monetary regionalism is that it will be a complex endeavor and will only be achieved in the long run. In view of putative conflict for leadership in the region between China and Japan, and barriers in various initiatives for deepening and stabilizing regional financial markets, the future of economic-security discourse in East Asia is uncertain.
i. Lin, Chin-Ming. “On East Asian Regional Integration from the Perspective of Economic Security.” Working Paper. Institute for Defense Studies and Analysis. October 23, 2012.
ii. APEC (Asia-Pacifc Economic Cooperation). APEC Economies: Breaking Down the Barriers. Singapore: APEC Secretariat, 2001.
iii. Fukase, Emiko and Will Martin. Free Trade Area Membership as a Stepping Stone to Development: The Case of ASEAN. World Bank Discussion Paper No. 421. Washington, DC: The World Bank, 2001.
iv. Urata, Shujiro. “The Formation of Regional Institutions in East Asia.” Asia & Europe: Beyond Competing Regionalism. Eds. K. Fukasaku, F. Kimura and S. Urata. Paris: OECD, 1998. 13-44.
v. Sakakibara, Eisuke and Sharon Yamakawa. “Regional Integration in East Asia: Challenges and Opportunities.” World Bank East Asia Project. Global Security Research Center. Washington DC. June 2003
vi. Tay, Simon SC and Jesus Estanislao. “The Relevance of ASEAN: Crisis and Change.” A New ASEAN in a New Millennium. Eds. S. SC Tay, J. Estanislao, and H. Soesastro. Jakarta: CSIS and Singapore: SIIA, 2000. 3-24.
vii. Soesastro, Hadi. “ASEAN 2030: The Long View.” A New ASEAN in a New Millennium. Eds. S. SC Tay, J. Estanislao, and H. Soesastro. Indonesia: CSIS and Singapore: SIIA, 2000. 187-227. 2000.
viii. Dieter, Heribert. “ASEAN and the Emerging Monetary Regionalism: A Case of Limited Contribution.” The Pacifc Review, 21(4), December: 489-506. 2008.
ix. Lin, Chin-Ming.
x. Dieter, Heribert. “ASEAN and the Emerging Monetary Regionalism: A Case of Limited Contribution.” Te Pacifc Review, 21(4), December: 489-506. 2008.
xi. Lin, Chin-Ming.
xii. Kartadjoemena, H. S. “ASEAN and the International Trading system: Regional Trade Arrangement vs. the WTO.” ASEAN Beyond the Regional Crisis: Challenges and Initiatives. Ed. M. Tan. Singapore: ISAS, 2001. 203-242.
xiii. Sakakibara, Eisuke and Sharon Yamakawa.
xiv. Brzezinski, Zbigniew. “The Group of Two that could change the world”. Financial Times, 13 January 2009.
xv. Soesastro, Hadi.
xvi. Tongpakde, Nattapong. “ASEAN Free Trade Area: Progress and Challenges.” ASEAN Beyond the Regional Crisis: Challenges and Initiatives. Ed. M. Tan. Singapore: Institute of Southeast Asian Studies, 2001. 48-79.
xvii. Fukase, Emiko and Will Martin.
xviii. “Regional Integration Will Enhance East Asian Stability.” News Release. World Economic Forum. June 10, 2010.
xix. Lin, Chin-Ming.
by Hannah Anderson
The topic of East Asian economic and political integration has been a hot topic of discussion over the past fifteen years. Stemming from the Asian financial collapse in the late 1990’s, pressure for the region to band together to support one another has increased through to the present. Reviewing the lingering effects of the 1997–98 Asian crisis, China’s expanding role in the region, and the evolution of regional institutions gives an outside observer a window into the potential of greater regional collaboration on an economic and political level in Eastern Asia. This background sets the stage for an exploration of forms of regional cooperation, which could emerge without damaging the progress already made through the region’s limited cooperation. This analysis aims to explain the political factors at various levels that have thus far shaped the institutional form of East Asian regional economic cooperation; in particular by examining the three essential aspects of regionalism derived from an analysis of the European Union (EU).
The EU forms what is arguably the most advanced and successful example thus far of regional institution building. Building this regional union required three essential conditions to support regionalism to be met.(i) These three key aspects divvy the theories of ‘regional institution building’ into a roadmap for enhancing regional unity. The first aspect prescribes the regional union as deserving of power, stating that at some level governments must be willing to compromise sovereignty and political autonomy for the sake of regional cooperation. The second states that the region must create mechanisms through which the “losers” and the “weak” within a country or region are compensated for losses incurred from increased openness. The third requires a clear definition of which members can, and should, benefit from such mechanisms.(ii) These three elements are useful in furthering regional cooperation and institution building by creating a roadmap for removing resistance and obstacles that work against functional spillovers. As this analysis focuses on Eastern Asia, formally defining the region is useful. Herein, East Asia is considered to be the Association of Southeast Asian Nations (ASEAN) Plus Three, the People’s Republic of China, Japan, and the Republic of Korea.(iii) Amongst these nations, political factors have thus far most shaped the existing institutional forms of cooperation, particularly in the three essential aspects of regionalism.
The more formal regional cooperation becomes, the number of legally binding agreements increase, and the more governments have to compromise their sovereignty and policy autonomy in favor of the regional effort. From the Treaty of Rome (in 1957) to the Maastrict Treaty (in 1994), Europe has widened and strengthened the legal agreements to unite the region through movements in goods, to movements of services, people and business, to uniting the macroeconomic and monetary policies.(iv) The same sort of progress has not been made in uniting the East Asian nations into a single trading framework, and without these sorts of binding agreements, countries will find it difficult create a regional framework with any authority. These sorts of formalized structures put in place an official regional policy to determine how to compensate the losers from greater openness to trade with neighboring countries, fulfilling the second aspect of regional institution building.(v) But to negotiate these conditions, the region must first reach a consensus on the third prong: which groups should be protected under a regional trading framework, and how to go about doing so.
In the aftermath of the Asian financial crisis, efforts to provide an institutional base for regional financial cooperation developed very quickly in East Asia. Te experience of the crisis prompted these efforts, which aimed to make sure that such a financial disaster would never happen again.(vi) Despite all three aspects of regional architecture being essential for securing maximum stability in the region, the progress made thus far has fallen short of creating an EU-type regional monetary unit. Tough three types of crisis protection funding exist in East Asia, they each currently sit in various levels of underdevelopment.(vii) The process of emergency currency swaps under the Chiang Mai Initiative (CMI) has become the most institutionalized of the three, while the Asian Bond Market Initiative (ABMI) and Asian Bond Fund (ABF) are each separately moving forward slowly and informally.(viii) There is currently very little movement in the area of monetary and currency cooperation in the form of an Asian Monetary Union or an Asian Currency Unit (ACU). The creation of an Asian bond market requires both issuers of bonds and investors in those bonds.(ix) Te nations of Eastern Asia have thus far seemed unwilling to take on the responsibility of issuing and insuring these bonds. Thailand’s ex-Prime Minister, Taksin Shinawatra, proposed in 2002 that the members of ASEAN Plus Three contribute 1% of each country’s respective foreign exchange reserves to launch a regional fund to purchase Asian bonds. The Executives’ Meeting of East Asia Pacifc Central Banks adopted the idea as they set up the ABF, which was formally announced in June of 2003.(x)However, East Asian monetary regionalism stops here. A discussion on convergence criteria or explicit macroeconomic policy coordination, which would be necessary to manage stable exchange rates among the countries whose capital movement is relatively free, has not taken place. Moreover, the push for currency unity in the region has not yet converged into concrete actions.(xi) These criteria must be met fully by the region’s countries in order for an effective regional union to form. As it stands—though many within and outside the region make the case for greater integration—an East Asian Union is a long way off.
Over the past decade East Asia has engaged in constructing numerous mechanisms to enhance regional cooperation in the areas of trade and finance. However, the region’s economic architecture exhibits certain idiosyncrasies, such as an eclectic institutional structure and a limited level of commitment shown by its members. These idiosyncrasies have prevented regional cooperation from becoming deeper and more coherent, despite efforts by the private sector to establish such cooperation.(xii) Eisuke Sakakibara and Sharon Yamakawa, two World Bank economists, describe the region as “both a global and intraregional heterogeneous” community.(xiii) Te countries of East Asia trade heavily with each other, directly invest across borders, and cooperate loosely on financial and monetary aspects in the region.
One sticking point of cited by experts to further collaboration in the region is how the dynamic in the region has changed in the last decade with China’s emergence as the region’s most powerful economic player. Since China’s ascension to its current economic stature, many would argue that formalizing an East Asian cooperative union has become impossible without China.(xiv) Many observers of East Asian regionalism have reached a similar conclusion, emphasizing the limits of regional cooperation. They argue that because of the historical mistrust between the two regional powers, China and Japan, exclusive East Asian regional cooperation is doomed.(xv) As tensions between these two seem to be growing each day, their cooperation on a regional economic union is unlikely.
With respect to an emerging trade bloc, the rise of “Factory Asia” triggered strong interest in the free trade area in East Asia, as production and business networks expanded throughout Southeast Asia.(xvi) Obviously, the Asian financial crisis has made Asian leaders realize the inadequacy of the region’s financial cooperation. The lack of an overarching regional trade regime strengthened the push for strong bilateral free trade agreements (FTA) in East Asia since the late 1990s as well.(xvii) According to Victor L. L. Chu, the Chairman and Chief Executive Ofcer of First Eastern Investment Group, a Member of the Foundation Board of the World Economic Forum, such cooperation is essential for an effective regional economic structure. He warns of the folly of building a regional union without equal participation, saying, “We have to accelerate regional cooperation and coordination. Knowing all the constraints of the global market, ASEAN Plus Three (South-East Asia along with China, Japan and South Korea) is the minimum. ASEAN is too limited to be the third leg of the stool. ASEAN Plus Three will stand a chance to create a powerful enough trading bloc.”(xviii)
Looking forward, the creation of an East Asian Economic Union faces three major challenges. With respect to financial issues, the clearly defined member governments have shown resistance to compromise their respective national macroeconomic policy autonomy. Furthermore, regional trade cooperation dialogue so far has failed to address how to redistribute economic gains to those who stand to lose during the process of integration. Before these countries can determine any sort of redistribution, economic maturity among these East Asian countries is necessary to determine the stable platform from which to find the losers from greater trade openness.(xix) Along with the global trade and financial challenges that would disrupt the region’s economic growth and stability, the desire for mutual economic stability is fundamental in motivating the governments to establish regional arrangements. For students of regionalism, perhaps the biggest lesson is that crises can pull countries together as well as push them apart. Leaders in East Asia are not currently as responsible for the economic fates of their neighbors as their European counterparts, but that could drastically change in the coming years. In order to pursue closer linkages, these countries will have to make peace with giving up some of their autonomy for the sake of monetary unity, and open up their markets to competition from their neighbors instead of simply making bilateral agreements. Therefore, current expectations about East Asian regionalism are rather modest. The preliminary conclusion of this look into the possibility of Asian monetary regionalism is that it will be a complex endeavor and will only be achieved in the long run. In view of putative conflict for leadership in the region between China and Japan, and barriers in various initiatives for deepening and stabilizing regional financial markets, the future of economic-security discourse in East Asia is uncertain.
i. Lin, Chin-Ming. “On East Asian Regional Integration from the Perspective of Economic Security.” Working Paper. Institute for Defense Studies and Analysis. October 23, 2012.
ii. APEC (Asia-Pacifc Economic Cooperation). APEC Economies: Breaking Down the Barriers. Singapore: APEC Secretariat, 2001.
iii. Fukase, Emiko and Will Martin. Free Trade Area Membership as a Stepping Stone to Development: The Case of ASEAN. World Bank Discussion Paper No. 421. Washington, DC: The World Bank, 2001.
iv. Urata, Shujiro. “The Formation of Regional Institutions in East Asia.” Asia & Europe: Beyond Competing Regionalism. Eds. K. Fukasaku, F. Kimura and S. Urata. Paris: OECD, 1998. 13-44.
v. Sakakibara, Eisuke and Sharon Yamakawa. “Regional Integration in East Asia: Challenges and Opportunities.” World Bank East Asia Project. Global Security Research Center. Washington DC. June 2003
vi. Tay, Simon SC and Jesus Estanislao. “The Relevance of ASEAN: Crisis and Change.” A New ASEAN in a New Millennium. Eds. S. SC Tay, J. Estanislao, and H. Soesastro. Jakarta: CSIS and Singapore: SIIA, 2000. 3-24.
vii. Soesastro, Hadi. “ASEAN 2030: The Long View.” A New ASEAN in a New Millennium. Eds. S. SC Tay, J. Estanislao, and H. Soesastro. Indonesia: CSIS and Singapore: SIIA, 2000. 187-227. 2000.
viii. Dieter, Heribert. “ASEAN and the Emerging Monetary Regionalism: A Case of Limited Contribution.” The Pacifc Review, 21(4), December: 489-506. 2008.
ix. Lin, Chin-Ming.
x. Dieter, Heribert. “ASEAN and the Emerging Monetary Regionalism: A Case of Limited Contribution.” Te Pacifc Review, 21(4), December: 489-506. 2008.
xi. Lin, Chin-Ming.
xii. Kartadjoemena, H. S. “ASEAN and the International Trading system: Regional Trade Arrangement vs. the WTO.” ASEAN Beyond the Regional Crisis: Challenges and Initiatives. Ed. M. Tan. Singapore: ISAS, 2001. 203-242.
xiii. Sakakibara, Eisuke and Sharon Yamakawa.
xiv. Brzezinski, Zbigniew. “The Group of Two that could change the world”. Financial Times, 13 January 2009.
xv. Soesastro, Hadi.
xvi. Tongpakde, Nattapong. “ASEAN Free Trade Area: Progress and Challenges.” ASEAN Beyond the Regional Crisis: Challenges and Initiatives. Ed. M. Tan. Singapore: Institute of Southeast Asian Studies, 2001. 48-79.
xvii. Fukase, Emiko and Will Martin.
xviii. “Regional Integration Will Enhance East Asian Stability.” News Release. World Economic Forum. June 10, 2010.
xix. Lin, Chin-Ming.
