The Asian Way of Regional Integration: Are There Lessons from Europe?

Rolf J. Langhammer

East Asian regional integration has widened in two directions: from the Southeast Asia-based ASEAN context to "ASEAN+3," which includes China, Japan, and South Korea, and from real sector integration (trade liberalization and factor movements) to monetary integration. The driving factors behind these new developments have been the stalemate situation in the multilateral trade negotiations (the Doha Round) and efforts to avoid a new financial crisis. Thus, regional integration in East Asia has been driven by external events rather than by an internal political process like in the European integration process.

East Asian integration relies on a large number of bilateral "criss-crossing" free trade agreements (FTAs) that are seemingly too cumbersome to be used by the private sector. There is no true integration hub in East Asia, but rather many spokes. Anecdotal evidence speaks of a noodle bowl syndrome that causes traders in the region to forgo applying for preferential treatment while nevertheless expanding intra-regional trade. In short, market-driven regionalization dominates institutionalized regionalization.

Extreme heterogeneity in almost each and every aspect (size, income level, economic structure, tariff levels), as well as the Asian preference for informality and unsettled political disputes on past and present issues, is a major stumbling block for regional integration EU style: a constructivist stages approach based on the rule of law. Surrendering sovereignty to supranational institutions is unacceptable in East Asia, which leaves pooling national sovereignty as the only alternative.

Monetary cooperation at an early stage has been pursued since the so-called Chiang Mai Initiative of 1999 with bilateral standby agreements, informal discussions on rationalizing foreign exchange reserves, and the promotion of regional bond markets. But such endeavors have not yet had to cope with the "bad weather conditions" of financial turbulences. Making a reasonable forecast on the quality of monetary cooperation in deterring financial attacks against single countries like those that happened in 1997 is difficult both because of the lack of institionalized trade areas, currency areas, and capital flow areas and because of the lack of an undisputed regional anchor currency.

Trying to influence East Asian integration by pointing to EU experiences would probably not be very fruitful given the fact that East Asia, if it continues to follow the ASEAN+3 concept, will become as inward-oriented as the EU with its widening and deepening process. Yet, even under such disperse styles of integration in Europe and East Asia, globalization and the ever-rising importance of cross-border externalities like environment, management of common resources, terrorism, and military threats will induce East Asia to consider using most European ways of making integration and cooperation effective, such as by defining the rationales, setting targets, monitoring implementation, multilateralizing bilateral arrangements, and, finally, involving the private sector. And it is this last way that is most likely to convince East Asia to take the lessons provided by EU integration seriously.

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