A publication of the Asian Development Bank No. 3     April 2009
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ASIA and EUROPE: Comparing Approaches to Regionalism

Both Europe and Asia face quite difficult challenges, as their current priority is to articulate a response to the ongoing economic crisis.

Over the past centuries, Asia and Europe have been the cradle of civilizations that have shaped the modern world and ways of life. But these two regions have also been ravaged by wars: their new discoveries and dynamism were often channelled into violence and destruction. The same forces that created progress and innovations in many fields were also responsible for death.

In Europe, two consecutive generations were culled in two world wars; in the 20th century too many years were wasted fighting. Similarly in Asia, people have been struggling for many years and conflicts have not disappeared from the region yet. At last in Europe, common values began prevailing, and both economic and political integration became a reality. The story of the European Union (EU)—as it is now named after few changes—is a mixed one but, on balance, a positive one. This has convinced many persons in different parts of the world to consider it a good example of regionalism to be followed, even to be copied, at least in some principles and aspects of governance.

On the other hand, Asia is often cited as an economic miracle. No other region in the world was able to achieve such an extensive economic growth in such a short time. And most of the region’s members, especially in East Asia, are an integral part of the success story. Today, scholars, entrepreneurs, and government officials agree on the idea of “factory Asia” or “Asia Inc.” where production processes of manufacturing goods are fragmented across the region, as large multinational corporations, together with local small and medium-sized enterprises, take part in an articulated regional division of labor where each country has an important role to play.

A comparison of the European and Asian approaches to regionalism finds different challenges, and some similar experiences.

In general terms, the European model can be considered a very successful example of regional cooperation, which led to close economic integration and a sharp reduction in the income gap among member countries.

After the destruction and hardship caused by two world wars, Europeans realized the importance of collecting peace dividends by working together with regional neighbors to build up integrated economies and societies. They understood that sharing sovereignty with regional partners in certain areas can generate much higher benefits than acting as a sum of individual policies. The cooperative game played by members of the EU has brought tremendous benefits to their economies and societies.

Based on a legalistic approach to regional cooperation and encompassing the development of strong regional institutions, the EU model was able to generate substantial economic gains through the creation of a single market and a monetary union, and by close coordination among national authorities in several economic, political, and social issues.

At the same time, the Asian model is one following a much more pragmatic and flexible approach. As the postcolonial period generated many modern Asian nations, regionalism and the idea of sovereignty sharing with regional neighbors are not an obvious priority for countries that need to build their national identities in the first place.

Asia’s regional economic model is based on the transmission of industrial development from more to less advanced countries in the region (the so-called flying-geese pattern) and an open approach to nonregional members pursuing a simultaneous deepening of both regional and global interdependence. In Asia are market forces more than governments that have shaped regional economic integration. Treaties are usually short and meant to formalize de facto informal interactions among members rather than introducing a complex set of binding rules and related sanctions, such as in Europe.

The triggering factor for enhancing regional cooperation in Asia during the last decade was the 1997–1998 financial crisis, combined with the problems experienced with multilateral institutions, in particular the disappointment with the way the International Monetary Fund handled the crisis and the stalling of the World Trade Organization’s Doha Round. The perceived progress of regionalism elsewhere in the world played also a role.

Based on the effort by regional authorities to sustain market-led economic integration through cooperation initiatives, regionalism in Asia has a different nature from regionalism in Europe, also considering the much wider dispersion that Asia is facing in terms of levels of economic development, social structures, and political systems. Asia’s regionalism involves only few and lean institutions, with a limited power and mandate conferred by national authorities to manage external shocks, internalize regional spillovers, and provide effective regional public goods. Asian regionalism is also based on a large number of subregional initiatives that provide a solid backbone to connect markets and people.

Another significant difference between regionalism in Europe and Asia regards the rules for membership. Entry rules in the EU are quite clear: democracy, market economy, and the complete reception in the national system of the body of EU laws and regulations (the acquis communautaire). Compliance to these rules can be checked and monitored in a fairly objective way. In the case of Asia, however, it is difficult to identify an unambiguous set of rules governing the issue of membership: the standard approach is that of case-by-case decisions taken ad hoc by political leaders.

EU economic integration included a customs union, a single market, and a common currency. After adopting a common trade policy, European countries agreed to the free movement of goods, labor, and services, then progressively liberalized their capital accounts and started a close coordination of their monetary and exchange rate policies before introducing the euro in 1999. In Europe, the integration of production and trade occurred before, and as a precondition of the melding of financial markets and monetary policies.

Today, the EU counts on an extensive institutional structure and a large regional bureaucracy. More than 60,000 eurobureaucrats in Brussels and other European cities work for the Commission, the Council of Ministers, the Court of Justice, the Parliament, and many other common EU institutions. Moreover, EU member countries engage in close intergovernmental cooperation in foreign and security policies, as well as in justice and home affairs. The permanent delegations of EU members in Brussels are very large and strategically important extensions of national government ministries and agencies. Eventually, Europe will move to closer social and political integration, although the process may still require some time before completion.

In contrast, Asia’s experience with economic regionalism is based more on parallel than consecutive developments in the trade and finance areas. While regional trade policy cooperation has gained momentum during the last 5 to 6 years with the proliferation of bilateral free trade agreements, cooperation in money and finance could not wait for the creation of a regional free trade area or a single market, as the Asian financial crisis of 1997–1998 created a need for closer cooperation. This crisis prompted the creation of the ASEAN+3 Finance Ministers Process and several related structures, such as the Chiang Mai Initiative and the Asian Bond Markets Initiative.

And while Asia lacks strong common institutions for regionalism and does not have a bureaucratic body to serve the region, Asian integration focuses on economic aspects with some social components but with no political ambitions, at least for now. To be sure, the Association of Southeast Asian Nations (ASEAN) has an advanced security dialogue with several Asian and non-Asian partners and covers social and cultural pillars in addition to economic cooperation.

But important regional players such as the People’s Republic of China (PRC), India, and Japan are yet to start a concrete dialogue on regional cooperation with a vision, goals, and a concrete implementation plan, or road map. The East Asia Summit was created in 2005 to expand the membership of ASEAN+3 (PRC, Japan, and Republic of Korea), including ustralia, India, and New Zealand. Although it remains to be seen what concrete initiatives this summit will introduce and how effective these initiatives will be, the membership of the East Asia Summit is interesting as it includes all major regional players and could potentially provide strong impetus to Asian integration beyond economic issues.

Both Europe and Asia face quite difficult challenges, as their current priority is to articulate a response to the ongoing economic crisis. This will likely happen through a combination of initiatives at the national, regional, and global levels. It is difficult to foresee how this global economic and financial turmoil will impact on regional cooperation and on the regional integration process. History teaches us that major steps in the direction of enhanced regionalism are typically taken as a reaction to shocks: the Second World War prompted the creation of the European Coal and Steel Community in 1951; the ASEAN+3 Finance Ministers Meeting was established in response to the 1997–1998 financial crisis.

Although a global crisis entails a global response, closer regional cooperation both in Asia and Europe may be necessary to increase the efficiency of action globally. In Europe, countries need to harmonize their approaches to financial regulation and supervision; in Asia, they should start a dialogue in areas such as exchange rate and fiscal policies, which have been left behind in the cooperation agenda.

The two regions can also learn from each other. For example, Asia can internalize some EU principles for governance. These include the combination of majority ruling and decisions that require consensus among all members, depending on the issue faced; the bias—or positive discrimination— introduced in favor of small countries and minorities in general, which is important to make regionalism relevant for all; the “subsidiarity” principle through which decisions are taken as much as possible at the lowest level of government and deferred to the higher level only when imposed by jurisdiction; and the use of the open method of coordination, which allows member countries to agree on several initiatives for intergovernmental cooperation without legal constraints.

In addition, Asia could be inspired from the proactive approach Europe followed in creating common institutions. Although Asia is not positioned for now to establish strong institutions for regional cooperation with a strong and unequivocal mandate to share a significant part of the members’ national sovereignty, much could be done to enhance Asia’s institutional capabilities for regionalism.

Europe, on the other hand, can learn important lessons from the Asian pattern of industrial development, which is based on the principles of pragmatism and flexibility, including high flexibility of labor markets. Such model implies, in turn, a high degree of adaptability as industries are being transferred from more to less advanced economies in the region. The other two aspects of the Asian approach that Europe should look at with interest are the emphasis placed on innovation and investment in research and development, which eventually brings advances in productivity and competitiveness, and the idea of “open regionalism,” or the idea of regionalism with the least discriminatory impact on nonmembers.

The EU is often offered as a textbook example to be followed by other regions, including Asia. But, while Asia can learn from the European experience, it makes little sense to emulate decisions and policies adopted by different institutions, in different regions and contexts. Asia must find its own path to greater cooperation and integration. As Europe had great visionaries such as Jean Monnet, Robert Schumann, and Altiero Spinelli, Asia needs its own champions for regionalism: individuals with great ideas who can inspire national leaders and make the region speak a more prominent common voice in global forums.

While the global financial architecture is being reshaped by the ongoing economic crisis, Asian regionalism has distinctive characteristics that make it a partnership for shared prosperity not only among Asian countries but also with the rest of the world. Enhancing Asian economic dialogue and cooperation is an important step to shape and raise Asia’s profile in global institutions.

Giovanni Capannelli is a senior economist in the Asian Development Bank’s Office of Regional Economic Integration. He also teaches political economy of Asia-Europe relations at the Ateneo de Manila University.