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UNU/IAS Working Paper No. 38
Regionalism in the World Political Economy
--An Empirical Assessment & A Conceptual Framework1
Shaohua Pan
1 The author wishes to thank UNU/IAS for granting him the Ph.D. Fellowship Award, which make itpossible for him to conduct research in Japan between March and November 1997.
1
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The fact that the world has become more integrated regionally poses a great challenge to
many existing frameworks of the world political economy. Today regionalism has
become the centerpiece in the debates about the nature of the post-Cold War
international order. To policy makers in both developing and developed countries, there
are two major concerns on regionalism. What is the current trend of regionalism? To
what extent does regionalism pose constraints and/or opportunities for national and
international development? The former is relatively an empirical question and the later
requires both an empirical analysis and a theoretical conception. This paper attempts to
address both of them. For the first one, this paper provides a preliminary assessment of
current regional arrangements on economic, institutional and political aspects. For the
second, the paper assess the pros and cons of regionalism on economic, social, political
and ecological dimensions and proposes a systemic framework to highlight the potentials
of regionalism. Given the fact that regionalism has become a central reality of the world
political economy without any significantly adversary impact being found, it is important
for policy makers to recognize the positive contributions of regionalism and strengthen
their leadership to capture its full benefits.
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To understand what are the current trends of regionalism, one has to make clear what
regionalism means. In fact, the definition of regionalism remains in dispute and it has a
different meaning to different people. In this paper, regionalism is broadly defined as the
disproportionate concentration of economic activities, institutional-building and policy
coordination in the economic-political-social-ecological domain of certain regions of the
world. Explicitly, regionalism concerns economic welfare, institutional linkages, and
political order in the areas of economic integration, political cooperation, social cohesion,
and regional eco-systemic balance. Such a definition allows us to grapple with the multi-
facet features of regionalism; and it is also methodologically easier for us to tackle the
problems surrounding regionalism in a comprehensive and integrative manner.
2
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Economic regionalism is affected by a number of factors such as historical experience,
cultural connectivity, settlement geography, political continuity, and various economic
interactions. (Table 1 highlights some of the factors affecting economic regionalism and
their positive and negative impacts in the case of Asia Pacific.) Economic regionalism
also involves various formats. It can be market-led, and/or policy-induced in approach; it
can be complementary or competitive in structure; it can be positive or negative in
measure; it can be open or closed in orientation; it can be deep or shallow in depth; and it
can cause trade creation and diversion. (See Table 2 for a summary of the dimensions of
economic regionalism.)
Table 1. Factors Affecting Regional Economic Integration
Factors Positive Impact Negative ImpactHistorical ExperienceInternal RelationsExternal Relations
Social cohesionColonial Linkages
racial, religious, class divisionJapanese Colonialism, Chinese Communism
Cultural ConnectivityLanguageReligion
Communication, understandingConfucian & Buddhism Division
Settlement GeographySpatial characterConnectivity
Overseas Chinese, Japanese, KoreaBorder regions
Immigration problemsdisputes
Political ContinuityRegime TypesFiscal, Monetary & Trade PolicySecurity Concerns
Flexible engagementStabilityPeace & Prosperity
China-USUS-JapanTaiwan, Korean Peninsula, Russia-Japan,South China Sea
Economic InteractionTradeStandard of LivingLabor FlowsInvestmentFinanceTechnologyEnergy & Resource
Labor, tech, market linkagesGrowthSkill & unskilled laborCross-economy, division of laborFunds, currency zoneSpilloverlow-cost
ProtectionCompetitive SqueezeNew ImmigrantsCapital flightFluctuationBarriersInefficiency, environment damage
Both economists and policy makers concern whether regionalism is welfare improving or
reducing and whether it would discourages further global economic integration. On one
extreme, one can claim that regionalism not only may create trade diversion and fill
protectionism, it also may derail multilateral economic order. On the other extreme, one
can argue about the necessity of policy coordination and the economic benefits arising
from factor flows, scale economy, R&D cooperation, and the necessity to protect infant
industries on a regional basis and so on. The divide is generally both technical and
normative.
3
Table 2 Dimensions of Regional Economic Integration
Approach Market-led
Policy-driven
Cross-border capitalCross-border zone
Growth triangleOpen economic associationFree trade areaCustom unionCommon marketEconomic union
Structure Complementary
Competitive
Comparable levelsSimilar factor endowments
Incomparable levelDissimilar factor endowments
Orientation Open
Closed
Non-exclusivity of membershipNon-discrimination
Exclusivity of membershipDiscrimination against outsiders
Measure Positive
Negative
Eliminating certain obstacles or impediments to integration
Creating the harmonizing conditions for improved integrative coordinationDepth Deep
Shallow
Reducing all impediments both at the border & within borders: tariff and non-tariffHarmonizing national norms & practicesComprehensive liberalizationDisputes settlement by courts & supranational institutions
Reducing cross-border barriers through unilateral or negotiated waysImpact Static
Dynamic
Trade-creation: Growth of inter-regional trade & growth of intra-regional tradeTrade-diversion: Reducing intra-regional trade & diverting trade from low cost third parties
Members: Increase of scale economies, competition, term of trade, FDI, bargaining leverageNon-members: exclusion of benefits, decline of term of trade, FDI, & bargaining position
A general consensus among economists is that the market-led approach, the
complementary structure, open orientation and the depth-focused integration are welfare
enhancing; whereas others have to be analyzed on a case by case basis as theory is not of
much help. The problem is that a regionalism often involves both market and policy
functions. Whether structurally complementary or competitive is not only country
specific but also industry specific, which means using income difference or even
divergence of development levels to judge whether a group of countries are structurally
complementary and competitive is not reliable. Besides, a regionalism can be initially a
closed one but opened up when internal integration reaches to a certain level. What’s
more, a regionalism may aim at shallow integration at the beginning but when the
process builds up the momentum, a deep integration may follow; or even reverse the
cause due to significant difficulties such as political obstacles not only preventing further
integration but also pushing back initial arrangements. Hence the impact internally and
externally varies according to time. Nevertheless, in order to measure the effects of
economic integration, some economists still try to distinguish the policy-induced
integration from market-led one. Since the market-led regionalism is commonly viewed
as part of the globalization process and taken as given, the general assumption is that if
4
we can establish a welfare relationship of policy-induced regionalism vis-à-vis the total
welfare or internal vis-à-vis the external, we would be able tell whether such a regional
arrangement is welfare enhancing or reducing. Many recent research on regional trade
arrangements based upon econometric models is following this line of thinking; but so
far the results are largely inconclusive. As Winters (1996) put it: “One can build models
that suggesting either conclusion but to date these are sufficiently abstract that they
should be viewed as parables rather than sources of testable predictions”2. For example,
Panagariya (1994) evaluated the welfare effects of three styles of trade arrangements in
East Asia: ASEAN Free Trade Area, East Asian trade bloc in line with the EC and non-
discriminatory free trade in East Asia (EA). Lewis, Robinson and Wang (1995) explored
the welfare implications of different scenarios in forming a full or partial free trade area
of APEC and a global area of free trade. A general problem confront those scholars is the
arbitrary separation of what constitutes the real natural part and what is really policy-
induced. Historically, the regional difference always exists and factors that cause the
distinctive regional patterns are complicated.
However, by observing the bilateral trade flows, we can still derive some regional
patterns and from there we can reasonably obtain some knowledge on regionalism at an
aggregated level and on an ex port basis. The straight-forward intensity indexes on trade
investment used by various authors3 for example can serve this purpose. Figure 1, 2 and
3 illustrate in selected years the trade patterns of five major regional groupings: the EU-
15, NAFTA-3, APEC-18, ASAEN-7 and EAEC-11 (East Asian Economic Caucus) in
terms of their internal and external trade relations. The trade intensity index4 is based
upon the ratio of bilateral flow to its expected value. As illustrated by Figure 1, all the
regions except the EU show a decline in their intra-regional trade, which means that
given the regional factors, market-led and/or policy-induced, intra-regional trade except
2 See Winters (1996) for a review of current econometric models on regional trade and global trade3 See Anderson and Horheim (1993) in Garnaut and Dysdale (1994) pp.125-142
4 The trade intensity index is defined as: iw
i
j
ijij XX
X
M
XI
−= / , (see ADB (1996) pp. 191) where
ijI is the index of intensity between country i and country j ; ijX is the exports from country i to
country j ; jM is the total imports of country j ; iX is the total exports of country i ; wX is the total
world exports. By comparing country i ’s actual export to country j ’s total import to country i ’s total
export to the rest of world, the effects of countries’ size to their trade share can be isolated. Specifically,
the intra-regional trade intensity inI is derived as the average of the trade intensity of the average of
each member to all the other members in the region. The extra-regional trade intensity exI is derived as
the average trade intensity of all the regional member’s net trade outside the region.
5
EU has become relatively less important over the years. While the EU’s internal trade
seems to have increased over the years, seemingly the result of the policy-induced
regionalism, its intra-regional trade intensity has consistently been the lowest among the
five regional groupings, which means that the total regional factors are not significant
compared with other regions. On the other hand, as illustrated by Figure 2, all five
regions have increased their trade intensity with outside regions from 1985 to 1995
without exception although ASEAN, EAEC and the EU maintain a relatively more
consistent increase than both NAFTA and APEC.
Note: Computed based upon the formula of trade intensity index defined in footnote 4 & 5.Sources: the Directions of Trade Statistics Yearbook, 1993, 1996, IFM
Figure 3 indicates the regional trade bias, which favors the intra- over the extra-regional
trade and finds trade bias exists in all five regions5. Under this measure, regional trade
bias is high in ASEAN but it also drops very quickly over the years. NAFTA also has one
of the highest regional trade biases. In fact, the EU’s regional trade bias is the lowest
among the five regional groups and it is followed by that of the APEC group. It seems to
imply that both the EU and APEC, if taken as two trading blocks, are more natural than
others. Comparing the EU with others, it seems to imply quite strongly that regional
arrangements do not necessarily increase trade bias. What’s more, the general trend as
indicate by Figure 3. and 2. is that regional trade bias is decreasing or remains relatively
low and international trade relations have become increasingly open. Indeed, as the only
regional economic arrangement that is big, long lived, and substantial enough to affect
the pattern of both internal and external trade relations, the case of the EU seems to reject
the significance that regional arrangements, assessed in an ex post basis, are creating
more regional bias than without.
5 The intra-regional trade bias intensity is defined as 1)/( −= exinbias III .
00.5
11.5
22.5
33.5
44.5
55.5
1985 1990 1995
Figure1. Intra-Regional Trade Intensity
ASEAN EA NAFTA APEC EU
0.930.940.950.96
0.970.980.99
11.011.021.03
1985 1990 1995
Figure 2. Extra-Regional Trade
Intensity
ASEAN EA NAFTA APEC EU
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
ASEAN EA NAFTA APEC EU
Figure 3. Regional Trade Bias Intensity
1985 1990 1995
6
As for whether economic regionalism in general would hinder the further global
economic integration, one can take on some broad perspectives and all the answers are
No in current circumstance. The reasons are clear. Firstly, current economic regionalism
is largely driven by the same forces that drive globalization. It is led by private
enterprises large or small to improve efficiency, competitiveness, better access to
resources and customers by increased specialization due to comparative advantage
among firms and increased production levels due to increased size of the market.
Secondly, current policy-induced economic regionalism is largely outward oriented.
Regional policy arrangements are basically to facilitate further integration into the global
economy instead of withdraw. It places more emphasis upon freeing market mechanisms
rather than more tightening government intervention. Finally, regional arrangements in
general are rule-conforming, that is, they are pro-multilateralism and multilaterlism-
complementary rather than disarraying away from multilateral standards. What’s more,
they are aiming at deeper economic integration in a much more broad areas that include
goods, investment and service than what current multilateral arrangements are generally
made possible. In terms of harmonizing internal rules, regulation and setting up
enforcement mechanisms, regionalism can go far beyond than multilateral regimes
currently can. As a recent OECD report argues: “internal adjustments related to intra-
regional liberalization can make the constituting economies more competitive and better
prepared to accept, economically and politically, multilateral liberalization. Regional
integration agreements also contribute, through a greater awareness of interdependence,
to greater acceptance of more effective international rules and more independent
procedures for their enforcement. Regional arrangements have been test beds or
laboratories of approaches and techniques which have subsequently found application in
the multilateral trading system.”6 Empirically, given the increasing numbers of regional
arrangements, tariff barriers have come down consistently and the growth of the world
trade and investment has surpassed that of the GDP across all regions of world. Arguably
world economy is becoming more and more integrated in spite of the mushrooming
regionalism around the world. One may even argue global integration has lots to do with
the economic regionalism since the latter may have injected lots competitive energies
into the spurs of globalization and provided the necessary infrastructure for further global
integration. After all, one should not forget that the so-called economic multilateralism as
represented by the GATT system historically started in a form of economic regionalism.
In Geneva in 1947, when GATT was established, its membership was only 23 and they
6 See OECD (1995) on regional integration and multilateral trading system.
7
were mostly the rich Western countries led by the US. Japan was not included, nor the
majority of the developing countries in Asia, Latin America and Africa, not to mention
the remaining Communist countries at that time.
Source: World Investment Report 1996, UN
Anther concern on regionalism is marginalisation, which refers to the excessive
concentration of economic activities in certain regions would deprive the rest of the
world of the chances of the benefits to integrate globally and achieve economic
convergence. If regionalism on international trade does not indicate the tendency of
reinforcing marginalisation, as illustrated by the declining trend of trade against members
outside the regions, would foreign direct investment (FDI) be affected more significantly?
The question is put forward as the balk of FDI is clearly concentrated in the three regions,
the EU, NAFTA, and the EAEC. As FDI constitutes the main source of technology
transfers, does current pattern of FDI flows mean that the regions outside the industrial
triad have been left out of technological advance? To qualify for the claim of
marginalization, one has to measure in two terms. First is to compare the sources of FDI
with their hosts. The second is to compare the FDI inflows to a region with the region’s
economic activities. If the sources generate the comparable volumes of FDI as what they
receive, and if a regional FDI inflows are comparable with its GDP (rather than
population), then there should be nothing to complain about regional arrangements.
For the first one, the EU, NAFTA plus EAEC both generate and consume over four fifth
of the world total FDI flows. For the second criterion, we can measure it by the
international investment intensities7, the share of inward and outward of FDI stock in
terms of GDP. Figure 4 shows the results of the FDI intensity of eight exclusive regions
of the world with that of the world average. It is true that the EU, NAFTA and EA have
been the privileged class as their FDI intensities are higher than the world average. Yet,
both the EU and NAFTA are merely modest players. The EU replaces NAFTA as a more
7 The regional investment intensity index is defined as the regional average of each country’s ratio ofinward and outward FDI stocks to its GDP.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1980 1985 1990 1994
Figure 4. The Investment Intensity by Region
EAEUNAFTAWorldOil-exporting CountriesAfricaWest AsiaL. America & the CaribeanC.& E. Europe
8
favorable place for FDI in 1985, seemingly attributable to the European integration. Even
so, the record for the EU is not significantly higher than the world average. It is the EA
region that has emerged as the world champion in terms of attracting and retaining FDI8.
It emerged as the leading FDI hosting region in the1990s replacing both the EU and
NAFTA. However, it is the EA that lacks policy-induced regional arrangements! The
global investment shift into the high growth region where regional arrangement barely
exists9 is clearly a response of market integration. On the other hand, the world average is
increasing almost a two-fold between 1980 and 1994. The other five regions also
increased theirs during this period of time and there seems a trend to converge to the
average too, especially the oil-exporting countries, Africa, West Asia and some less
extent, Latin America and the Caribbean.
Table 3 A Comparison of Alternative Modalities of Economic Integration
Elements
Form
Tariff &Quota
Abolition
CommonTariff &
Quota
FactorMovements
Unification ofEcono-Political
Institutions
LegallyBinding
DiscriminationAgainst
OutsidersGrowth Triangle Yes No Yes No No Yes
Open Economic Association Yes No No No No NoFree Trade Area Yes No No No Yes YesCustom Union Yes Yes No No Yes Yes
Common Market Yes Yes Yes No Yes YesEconomic Union Yes Yes Yes Yes Yes Yes
The argument so far is not to claim that the fear of discrimination arising from
regionalism is unjustifiable, however. Theoretically, trade creation and trade diversion
would coexist after countries form free trade area and custom union. But such problem is
not only confined to regional agreements. Bilateral agreements or even unilateral
arrangements can also create similar problem; and if the involved countries are big, so the
potential of big diversion. To equate regionalism with trade discrimination is
oversimplified. It would blind us from recognizing the deeper gains out of the some
regional arrangements. Moreover, to equate regionalism with the arrangements described
in the free-trade-area and custom union framework is too narrow in scope as there are
always alternatives. Sub-regional integration, or the so- called growth triangle based upon
geographical connectivity and resource complementarity is one and open economic
8 FDI reflects only loans and equity investment. It does not reflect the international strategic allianceand other non-equity arrangements such as locally financed loans and local shareholders, reinvestedprofits. However, as an indicator of internationalization, FDI flows do reflect the increase of MNCactivities; and FDI stocks, the potential structural developments of the economies.9 ASEAN adopted Industrial Joint Venture and Promotion and Protection of Investments (binding) in1987. APEC adopted Non-Binding Investment Principles in 1994. Both are modest facilitatinginstruments.
9
association10 base upon non-discriminatory principle is another. (See Table 3) Growth
triangles have effectively creating border-less regions cutting across nation-states,
striving to become the growth poles for further expanded integration. (Table 4 provides a
summary of some major growth triangles in APEC region.) The modality of open
economic association as demonstrated by APEC is also impressive in strengthening both
internal and external liberalization processes. Both of them are empirically rich examples
of regionalism that are taking shape in the Pacific region; yet both are seldom recognized
in the mainstream international economics. Given the overall liberal stance, the
theoretical foundation of trade and investment in modern international economics still
remains largely on a country-to-country basis. One has to wonder how global integration
would happen if all countries have to wait until the last country is ready. Open
regionalism11, to put it simply, represents a modality of letting the ready ones to move
ahead and invites the others to join at a later stage without penalty. It also intends to
explore its collective leverage to prevent other forms of regionalism from turning inward.
The conclusion so far is that current regionalism empirically does not appear to reinforce
global or regional trade and investment divergence nor appear to hinder global or
regional integration. It is true that one may even argue at least in the case of EA that
global and regional integration does not necessarily have to have to depend upon policy
arrangements. Moreover, I would argue that what appears to be important to increase
international trade and attracting foreign investment has more to do with the health and
dynamics of the domestic economy. The predominant economic capacity of the EU,
NAFTA and EA is not simply derived from trade and/or investment. What fundamentally
support their economic strength has more to do with their indigenous scientific power,
technological potential, human resource, infrastructure and sound economic management
and so on so forth. Of these criteria, East Asian developing countries are still relatively
weak and further regional cooperation with developed countries to strengthen their
indigenous capacity is badly needed. The two regional cooperation modalities, open
economic association and growth triangle, will further strengthen the foreign trade and
investment-led, foreign market and technology-dependent growth strategy of EA
developing economies. The former is aimed at macro-level, that is country to country
basis; and the latter, the micro-level, sub-national region to sub-national region basis.
They are mutually supporting in that the former helps to sustain an open and favorable
10 See Yamazawa 1996 on such new model of regional integration11 It will be dealt with in the session on politics.
10
international economic system for the latter’s border-dismantling integration. The latter
internalizes the both the benefits of border-dismantling integration and global
liberalization and strengthens the economic base for and political commitment to further
global liberalization and integration.
Both Mexico and Southeast Asia currency crises highlight the importance of economic
integration. In the former case, it was the US. that initiated the monetary support and in
the later it was Japan that came to the rescue, although in both cases IMF was in the
limelight. If one understands that the inter-locking interests have the strongest base
between neighboring countries, understand the so-called multilateral agencies are at their
best sustained by the big powerhouses, one would find out how important regionalism is
in sustaining the economic vitality of those relatively small and weak countries. Indeed,
we have many currency crises around the world. Poor countries that are not integrated
regionally particularly with the powerful economies are not very well appreciated by
those multilateral agencies. All this underlines the importance of regional integration. It
provides the individual economies the convenient space for market expansion to take
fuller advantages of the economy of scales and the economy of scope to achieve both
competitive and comparative advantage. For the poor and small economies, regionalism
provide them the secured chance to reap the benefit of all kinds of economic externalities
spilled over from the rich including the assurance of economic rescue in time of trouble
maybe. We don’t want to deny that world economy is increased globalized where all
economies are increasingly integrated but unevenness and disparity exist and they make a
huge difference. Policy that would strengthen the economic linkages and access is
important. Recent Asia-Europe Meeting once again reflects the strong motive of East
Asia, particularly the relatively small nations’ group, ASEAN, to strengthen the global
linkages networked in overlapping regionalisms. Indeed, market based regionalism can
be achieved with or without institutional arrangements but it is clear that deeper and
wider integration has to depend upon certain levels of arrangements and that is why we
need institutional bases.
Table 4 Asia-Pacific Growth Triangles
GrowthTriangle
Popm.
Area,000skm.
GDPb. US$
Complementarity Time Sponsor LeadingCounty
Leadingindustry
Purpose
South ChinaGuangdong,Fujian, HK,Macao &Taiwan
120 340 80 Culture, Capital,Labor
1980s Private HK, Taiwan Manufacturing Greater Chinaintegration
Tumen RiverVostochnyy,
20 200 Natural resources,Land, Energy,
1991 UNDP China ResourceProcessing
DevelopmentCooperation
11
Nokhoka,Vladivostok;Ch’ongjin; Jinlin
Environment, LaborJapan & S. Korea:Capital
SouthernGrowthTriangleSingapore, Johor,Riau
8 115 40 Singapore: Capital,Johor & Riau:Labor & Land
1989 Singapore Singapore Aagribusinss,Tourism
Verticalspecialization
NorthernTriangleIndonesia-Malaysia-Thailand
21 NE Malaysia:CapitalS Thailand & N.Indonesia: Labor
1991 ADB Malaysia Electronics
East GrowthTriangleMindanao,Sulawesi,Sarawak andSabah andBrunei
30 500 Mindanao: LaborSarwak & Sahah:Resource & capitalSulawesi: Tourism& agricultureBrunei: Capital
1993 ASEAN PhilippinesMalaysiaIndonesiaBrunei
Processingindustry
Crossresourcesdevelopment
GreaterMekongSub-regionCambodia,Yunan, Laos,Myanmer,Thailand,Vietnam
200 Natural resources,Land, Environment,Labor
1992 ADB Thailand Agro-industry,manufacturing,tourism
Agro-industry,manufacturing,tourism
East PacificBeltVancouver-Seattle-SanFrancisco-LosAngeles
40 1700 1115 4 million OverseasAsian, PacificConnection Belt,Consume &Production Market
1950s Private US, Canada Transportation,Aerospace,Electronics,Computer,R&D
Multiple
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Institutions mean different things to different people. In relation with regionalism, we
would define institutions as structural components in a regional setting through which
essential social activities were organized and social needs were met that are either
integrative or fragmentational towards regional formation of various kinds. In a more
narrow term, institutions more or less equate with organizations with their distinctive
functions and purposes. Even so, the complexity of institutions and their developing
process are still difficult to grapple with. However, if we believe that these institutions to
a large degree represent the needs of their constituents at large, believe that they reflect
and shape public intentions and believe that they forge bonds among their stakeholders,
and believe that they provide the necessary governing infrastructure, then where the
memberships of those institutions are originating from, what are their orientations and
where their affiliates are all become a meaningful indicator. Let’s take a look at the first
group of transnational organizations, the transnational corporations and then the second,
civil organizations.
We know that transnational corporations (TCs) are the dominant and active players in
international economic activities and in general they are both globally and regionally
12
oriented. They are the sources of FDI, international merge and acquisitions and transfer
of technology. The distribution of parent firms and their foreign affiliates of TCs often
serve as a strong binding force across nations and regions. Clearly, it demonstrates a
regional preference12.
Source: World Investment Report 1996, UN
Today, out of over 38,700 TCs and their 265,551 affiliates in the world, about 78.4% of
TCs and 64% their affiliates are based in the EU, NAFTA and EA. This clearly indicates
a triad pattern of global distribution of TCs, which coincides with the trade pattern. But
there is a difference between different regional groupings in terms of their parent firm
and foreign affiliate concentration. Measured by concentration index13, Figure 5 shows
both the EU and NAFTA have a higher parent firm concentration indexes than their
foreign affiliate concentration indexes, whereas the other groupings have higher foreign
affiliate concentration indexes than their parent affiliate indexes. If we assume that a
transnational parent firm generally tend to be more in favor of an open system for its
global reach vis-a-vis a foreign affiliate which has a relatively narrow focus, the pattern
may indicate that the business interests in both EU and NAFTA would tend to favor a
more globally oriented rather than regionally oriented international economic relations.
Such an interpretation is chiefly derived from the assumption that global firms have a
broad scope of business interests and also globally competitive. A bit of caution is
needed however as preferring global to regional may be quite industry specific, it also
depends upon the context and strategy of the firm. A small and local firm can also be
very globally oriented whereas a big and global firm may also be quite inclined to seek
regional shelter. Nevertheless, the concentration indexes of parent and affiliate provide
12 The major R&D functions are concentrated at the parent firms and technology diffusion usually takesplace between the parent firms and their foreign affiliates. The distribution of parent firms can indicatethe overall technological strength of the economies while the distribution of the foreign affiliates, thetechnological linkages with others.13 Defined as defined as follows: Index = (actual x value – minimum x value) / (maximum x value –minimum x value), where x is the ratio of the number of parent firms or foreign affiliates to the numberof world total parent firms or foreign affiliates.
F i g u r e 5 . P a r e n t F i r m & F o r e i g n A f f i l i a t e s C o n c e n t r a t i o n I n t e n s i t y I n d e x e s
A S E A N
E A
N A F T A
A P E C
E U
A S E A N
E A
N A F T A
A P E C
E U
0
0 . 2
0 . 4
0 . 6
0 . 8
1
0 1 2 3 4 5 6
P a r e n t F i r m I n t e n s i t y F o r e ig n A f f i l i a t e s I n t e n s i t y
13
an important reference at least to ponder about why over the years protectionism
sentiments both in the EU and NAFTA do not propel regional closure whereas market
opening and liberalization in EA and ASEAN are slowly paced.
In terms of the civil organization, As illustrated in Figure 6, currently at the global level,
regional civil organizations constitute the dominant group in international civil
organizations14. Non-governmental civil organizations outplay inter-governmental civil
organizations in number both at international and regional levels. This implies that
significant civil institutional development is largely concentrated at regional level. This
also indicates that the inter-societal development is more intensive in scale than inter-
governmental relations.
The institutional intensity index based on the membership and regional comparative
stance in this regard helps us distinguish some basic patterns. Our target regions are
again the APEC, EA, ASEAN, NAFTA and the EU. Based on the institutional intensity
index, Figure 7 represents “the official response sheet” 15. In terms of global institutional
intensity index, which measures the relatively degree of global institutional building at
regional level, the EU is on the top followed by APEC, ASEAN and EA together.
NAFTA is at the bottom. In terms of regional institutional building at regional level, the
EU again is the top followed by NAFTA, APEC, and ASEAN, and EA is at the bottom.
It indicates that both ASEAN and APEC are more pro-global than pro-global. EA is pro-
global only and NAFTA is pro-regional only and the EU is pro- both. It also indicates in
terms of pro-global, APEC has a higher degree than ASEAN, followed by EA and
NAFTA; and in terms of pro-regional, NAFTA has higher degree than APEC, followed
by ASEAN and EA. But on both terms, the EU registers a significantly higher degree
than all the other groupings, that is, it is officially pro-both.
14 As classified in the Yearbook of International Organizations, regional membership inter-governmental and regional membership non-governmental organizations are regionally orientedmembership organizations; international membership inter-governmental and international membershipnon-governmental organizations are inter-continental membership organizations. See Table 2. UN,1996b pp.1636-715 The “official institutional intensity index” is defined as follows: Index = (actual x value – minimum xvalue) / (maximum x value – minimum x value), where x is the average number of the internationalmembership inter-governmental organizations by country or the average number of regionalmembership inter-governmental organizations by country.
14
Source: Yearbook of International Organizations 1996/1997
Sources: Yearbook of International Organizations 1996/1997; World Development Report 1996
Figure 8. represents “the societal response sheet” 16. In terms of both global and regional
institutional intensities, the EU registers extremely higher degree than all the other
groupings and is followed by NAFTA, ASEAN, and APEC. EA is at the bottom on both
terms. Compared with the official indexes, societal indexes indicate a consistent pattern
of correlation between pro regional and pro-global among all the five groupings. The EU
registers a predominant high degree of pro both regional and global position, followed by
NAFTA, whose degrees are less than one fifth of that of the EU. ASEAN ranks behind
NAFTA, and EA is at the bottom in both regards.
The distance that the EU is on the “institutional ladder” in both at official and societal
accounts and both at global and regional institutional levels shows how far the EU has
gone ahead of others on all dimensions.
16 The “societal institutional intensity index” is defined according to the same formula as the “officialinstitutional intensity index”. But x is the average number of international membership non-governmental organizations in a region by its total population or the average umber of regionalmembership non-governmental organizations in a region by its total population.
255
2991
50
859283
3383
51
792285
3382
51
807230
3259
45
796217
3406
41
770215
3457
36
774191
3653
37
801186
3933
37
1007
0
1000
2000
3000
4000
1981 1984 1986 1988 1990 1992 1994 1996
Figure 6. Organisations by Year & Type
Regional Membership Inter-governmental Regional Membership Non-governmentalInternational Membership Inter-governmental International Membership Non-governmental
Figure 8. Global First or Regional First & How Far?
--An Societal Response
EAEC-11APEC-18
ASEAN-6NAFTA-3
EU-15
EAEC-11APEC-18 ASEAN-6
NAFTA-3
EU-15
0
0.2
0.4
0.6
0.8
1
0 1 2 3 4 5 6
Global Institutional Intensity Regional Institutional Intensity
Figure 7. Global First or Regional First & How Far?
--An official Response
EAEC-11 ASEAN-6
APEC-18
NAFTA-3
EU-15
EAEC-11ASEAN-6
APEC-18
NAFTA-3
EU-15
0
0.2
0.4
0.6
0.8
1
0 1 2 3 4 5 6
Global Institutional Intensity Regional Institutional Intensity
15
If we regard the official intensity index indicates the policy orientation and the societal
index indicates the communal integration, globally and regionally, there are a number of
interesting questions and each requires a careful thought:
1. Would we agree that the EU is much more oriented and integrated both regionally
and globally than others institutionally?
2. Would the bigger gap existed between EU and each of the others at societal level
than they are at official level indicate that official orientation towards integration in
all the other groupings is ahead of what their current stages of integration at societal
are? (Or say, societal integration of those groupings are far more lacking behind the
EU than the lacking in their official orientation?)
3. Within APEC and at societal level, would we think that NAFTA is more globally and
regionally integrated than ASEAN and EA is the least integrated both globally and
regionally?
4. Again, within APEC and at official levels, would we agree that both ASEAN and EA
is more globally oriented than NAFTA and NAFTA is significantly more regionally
oriented than ASEAN, and EA is the least regionally oriented?
5. At the official level, what does it indicate that NAFAT’s global intensity index is
below its regionally index against the patterns of all other groupings as well as its
own index pattern at societal level? Does it indicate that officially NAFTA lacks
global orientation?
6. Except the abnormality of NAFTA’s official institutional intensity index, there is a
correlation between global and regional institutional intensity indexes at both official
and societal levels. Does it indicate that a more regionally oriented or integrated a
grouping is the more globally it is and vice versa?
Given the controversial tendency of questions number 4 and 5, the answers that need to
explore are beyond the scope this paper. For others, we may be able to make a fairly
quick judgement. For example, If the answers to question number 1 and 6 are both yes,
we apparently may vindicate that regionalism is a “half-way house” of globalism. That is,
16
regionalism is a preparatory stage to globalism. If the answer to question number 2 is
also a yes, we may further vindicate that the EU’s experience is forging a much stronger
social cohesion than that of others. That means societal linkages across nations are
stronger in the EU than anywhere else. If the answer to question number 3 is again a yes,
we may vindicate another case of regional integration, NAFTA, which is more mutual
than others within APEC. Based upon them, we may argue that to certain extent that
institutional regionalism, at least at societal level like economic regionalism analyzed on
an empirical basis seems to be also constructive toward a more open and rational
integration of the globe society at large. Indeed, it appears to be the case that a more
mutual a regional institution is, the more global it orients and more comprehensive its
development strategy towards the rest of the world.
However, since we are dealing with numbers at an aggregated level, we need some
cautions. What is important for an institution is its objective as well as its capacity. The
purposes that those institutions serve and the ways that they confront the reality are too
complicated to allow any simplified judgement purely based on numbers. Nevertheless,
the above indexes do indicate a pattern and it also confirm with our perception. Both pro-
regional and pro-global are pro-open! The growing cobweb centered in certain regions or
spread round the world is creating an inter-dependence institutional structure and
facilitating our nation-based economy, society and polity to orient increasingly outward.
3ROLWLFV�DQG�5HJLRQDOLVP
Contrary to the claim that economics can replace politics in a globalized international
economy driven by de facto, or market-led integration across national borders. Politics
are still very much alive even in the form of “open economic association”17 such as the
APEC. Broadly speaking, we can observe four major political currents in the
international economy today; and they are protectionism, mercantilism, market liberalism
17 Yamazawa (1996) defines the modality of APEC as an “open economic association”:nondiscriminatory, economic focused and voluntary. Some people argue that politics have beenignored in the economic approach to APEC and they point out that security and environment issues areequally important in the region. These people forget that the agenda selection itself is politics.Moreover, cooperation starting from less sensitive areas such as economic issues tend to facilitatecooperation in other areas. This functional perspective is widely accepted in East Asia and it has provedto be right in the experience of the EC.
17
and social liberalism18. They can be analyzed from five areas (see Table 5 for a
summary).
Firstly, it is the value and the objective projected from the value or belief carried by the
currents. For protectionists, they believe that international engagement incurs cost, risk,
drain and burden for national welfare and therefore it is vital to preserve national welfare
from necessary measures of protection. For mercantilists, they hold economic gains in
international competition are an essential means to enhance national power and believe in
active strategic engagement through state intervention. Market liberals believe free
market is the best means to maximize efficiency, productivity, consumption, and freedom
of choice; whereas the basic stance of social liberals is that development and democracy
constitute the vital goal to build an international society of freedom and justice for all.
Secondly, it is the relations between politics and economics. For proectionists, to
safeguard national economic well-being, it is right for a nation to disengage itself from
international involvement through political means. For mercantilists, politics should be
actively pursued in international economy to promote national economic position in the
international competition against others. For market liberals, however, international
economy should be free from political interventions in order to achieve optimal economic
growth, distribution, inter-dependence and peace. For social liberals, they advocate that
international economy should be politically managed under the legitimate principles of
rights and fairness.
Table 5 Four Responses to International Economy
Protectionism Market Liberalism Mercantilism Social LiberalismValue-Objective
International engagementincurs tremendous costand burden for national
welfare; It is vital topreserve national welfare
Free market is the bestmeans to maximize
efficiency, productivity,consumption,
& freedom of choice
Economic gains ininternational competitionsare an essential means toenhance national power
Development anddemocracy constitute the
vital goal to build aninternational society of
freedom and justice for all
Politics---EconomicsTo safeguard national
economic well-being, it isright for a nation to
disengage itself frominternational involvementthrough political means
International economyshould be free from political
interventions to achieveoptimal economic growth,
distribution interdependenceand peace
International economyshould be subjected to the
need of national wealthcreation so as to promote
national power
International economyshould be political managed
under the legitimateprinciples of rights and
fairness
18 We see some authors use neo- to highlight the current states of those political views. Forsimplification, we skip the neo- distinction.
18
Orientation---IdeologyNationalistic &
non-interventionalisticInternationalistic &
non-interventionalistic,political failure
Nationalistic &interventionalistic,
Internationalistic &interventionalistic, market
failure
Deliberation---PolicyNational producers,
consumers, and laborsshould be shielded from
foreign competition
International Economyshould be free to benefit themost efficient ones: skills,
technology, company,industry, economy,
country(?) & class(?)
International economyshould be managed by
government intervention tonurture national
competitiveness, protectingjob, industry, market share,national security, retaliating
foreign unfairness
International economydemands collectively
management to achieveopen and fair competition,development & democracy
Action-AgendaTariff and non-tariff
barriers, Import quota,voluntary export restraintslocal content requirement,
administrative policy,
Enforcing property rights,free trade, deregulation,privatization, structural
adjustment, flexible wage,enhancing private sector
competitiveness, attractingFDI
Soft: Tariff & non-tariffbarriers, subsidy, importquotas, voluntary exportrestraints, local content
requirement, administrativepolicy,
Aggressive:Coercion, retaliation, war
Fair trade, internationalinstitution & regulation to
correct market failure
Thirdly, each of the four trajectories of politics has its own orientation and is associated
with certain dominant ideology. For protectionism, it is inward-looking and non-
interventionalistic, and it is to some extent connected with nationalistic views; in
contrast, mercantilism is outward-looking and internetionalistic, and it is highly
associated with nationalistic political belief. Market liberalism is outward-looking and
advocates non-interventionalistic because of political failure. It is highly associated with
internationalistic and globalistic beliefs but has a faith in market vis-à-vis in politics. In
comparison, social liberalism is also outward-looking and associated with
internationalistic and globalistic beliefs; but in contrast, it advocates government
intervention in international economy to correct market failure.
Fourthly, all these value-objective, politics and economics and orientation and ideology
have a significant impact on deliberation and administration of government policies.
From protectionalist stance, policy would stress the importance of national producers,
consumers, and labors to be shielded from foreign competition whenever it is possible
and as far as it can. From mercantilistic view, international economy should be managed
by government intervention to nurture national competitiveness, promote domestic job,
industry, market share, security and retaliating foreign aggressiveness. From market
liberal position, policy of international economy should address the barriers that prevent
the freedom to benefit the most efficient ones: skills, technology, company, industry,
economy… In contrast, the policy stance of social liberalism is that international
19
economy demands collectively management to achieve open and fair competition,
development and democracy.
Fifthly, policy is translated into action agenda. Protectionistic measures would include
elevating any of the shelters or barriers. Mercantilistic measures, in comparison however,
include both protectionistic ones and more aggressive and confrontational ones ranging
from trade and economic coercion, retaliation, to trade and economic war. The action
agenda of Market liberalism places emphases on a number of market oriented measures,
which include enforcing property rights, liberalization of trade and investment,
deregulation of national economy, privatization of public sector, structural adjustment to
market functions, flexible wage to reduce unemployment and boost international
competitiveness, and enhancing private sectors to replace inefficient public ones. The
action agenda for social liberalism is also emerging recently. They are embodied in
various principles of international institutions and regulations recently under discussions
and debates such as the competition policies, labor standards, and environment issues.
Both the scope and depth of them are significantly beyond any single-issue area and the
impact is bound to profound given the current confusions that they have generated.19
One may ask what the dominant political trend is among the above four. It is really
difficult to generalizing or even to speculate without a framework as to how, why and
where each of them is like to occur. We see them somewhere, sometime and somehow
and one may be dominant in one area at one time in one manner and others in other areas
at other times and in other manners. For example, in the mid-1980s, we saw the market
liberalism appeared to be winning in the West; but the recession period followed
witnessed the rise of both protectionism and mercantilism. Currently we see the social
liberalism is emerging in the Western industrial societies and the developing areas are
becoming more market-oriented. But it is also in the West that protectionistic sentiments
are potentially strong and in the developing areas that nationalistic stance still retains a
strong foothold. East Asian developmentalism is rooted very much in the mercantilism
and its future evolution seems very much dependent upon the internal dynamism to
balance market oriented and socially democratic governing principles; and the global
environment may facilitates or hinders the transformation.
19 The scope of the emerging social concerns mixed with economic issues is very broad. Given thespace, we have to skip the discussion of it.
20
Indeed, regionalism seems to offer a plausible framework for us catch the trace and
symptom of the four political currents. The rise of regionalism gives the four currents an
international anchor; it also renders them with new and perhaps more constraints. First,
competitive and divergent forces at regional level would make both protectionistic and
mercantlistic interests difficult to capture the policy agenda. The bigger the region, the
more members the region and the more open the region, the more divergent interests and
more competitive forces against one another. Consumer interests and producer interests,
importers’ interests and exporters’ interests plus inter-countries’ bargaining would
undercut one another and making protectionalism and mercantilism difficult to surge.
Secondly, it contains aggressive unilateral actions of member nations either under
mercantilistic motive or market liberal inclination. Such an example can be found in
Canadian motive in signing NAFTA agreement with the US. to constrain the latter’s
aggressive free market unilateralism and in France and other small nations’ motive to join
the EMU in order to minimize the disruptive impact of interest rate management of the
conservative Bundesbank. By doing so, all are bonded together and the national
autonomy is surrendered to various extents. By doing so, the national base of
mercantilism would be significantly undermined and the expansionary free capitalist
force would be faced with greater social and political constraints across nations. Thirdly,
nation states would like to cooperate with their most immediate economic partners to
make sure their smooth relations would not be interrupted by any unforeseeable events.
The most recent case is the Asian currency crisis. Although it happens in Thailand and
Malaysia, Japan is affected because of its huge investments in these countries. Japan
therefore takes a strong interest in bailing them out. Hence we see that national interests
are emerged with regional interests owing to the growingly strong inter-dependence
structure at regional level. The inter-locking interests across national boundaries would
further render nation-based protectionism and mercantilism increasingly irrelevant. But
would region-based mercantilism and protectionism emerge? If it would it would
certainly be more threatening! But so far we have not found a case to justify the validity
of such worry, except, maybe, the Common Agriculture Policy (CAP) of the EU. But
measured in producer subsidy equivalents per full-time farmer equivalent and share of
total monetary transfers in GDP, both of the records of the EU are significant lower than
that of Japan.20 One may quite reasonably doubt the level of protection in the EU could
have been lower without the CAP.
20 Measured by producer subsidy equivalents per full-time farmer equivalent in thousands US dollarsand share of total transfers in GDP in 1996, the EU’s records are: 20 and 1.1 and the Japan’s 28 and
21
Regionalism can not and should not be thought only based upon simple economic models
in the textbook that have left out so many things untouched. Politics like the institutional
developments highlighted in the previous session are a key ingredient in it and should in
any measure be analyzed and assessed. Fundamentally, one has to understand that politics
moving beyond their parochial base, a nation, toward an international one, a region, is
anything but a progress. In this regard, there are a number of crucial facts that we need to
recognize.
Firstly, the beginning of a process to confront in the collective manner the issues arisen
from interdependence by the regional members is also the beginning of a process to build
mutual understanding, common bond in interest, obligation, and responsiveness towards
each other. Such contractual relationship, be it at cognitive or normative level, between
policy makers of different nation states is bound to unleash a fundamental change in the
perception and outlook towards one another from the top. It will help to broaden and
deepen the political space of cooperation among nations. In the case of APEC, though it
is a loose economic association legally unbounded, the common interests to maintain an
open, comprehensive and non-discriminatory framework of economic system and the
aversion to protectionism arise from extensive policy dialogue and institutional linkages
would encourage greater room and freer space to forge a collective policy position and
political commitment to further the integration process rather than withholding progress.
Secondly, in order to reach solutions on substantive regional issues and to enhance power
and influence of individual members through collective actions, member states will have
to establish open and transparent interaction among each other, which may eventually
lead to legally bonded relationship. With certain collective bondage, regional cooperative
schemes set implicit or explicit rules to regulate the behaviors of participating members.
Standards can only be maintained by endorsing mutual or collective monitoring or
appraisal system. As such, individual national sovereignty will be, to varying degrees,
challenged, comprised and subordinated to the regional collective agenda and
regulations. The most significant case of this is the EU, though the hurdles ahead are
nevertheless formidable. Whether APEC would evolve into the stage of deep integration
is debatable. Current unilateral economic liberalization schemes facilitated with region-
wide unilaterally coordinated programs on such issues areas such as trade, investment,
1.7. See OECD 1997, p. 33
22
technology, food, energy, environment, populations21 would nevertheless harmonize
national economic regimes, make them more in line with one another and converge to the
international norms and practices.
Table 6 Open Economic Association
Principle22 Open
Economic
Voluntary
Structure & policy do not discriminate trade and investment with the restof the world.Economic issues are the primary policy focus & chief policy mechanism toconsolidate regional integration.Members do not have to cede sovereignty to any supranational regionalinstitution but actively participate in the collectively process & are free toestablish linkages outside the region without any constraints.
Dimension23 LiberalizationFacilitation
Development
Non-discriminatory reduction of protection.Expanded provision of public goods relevant to the efficient operation ofthe regional market.Process of market integration
Pragmatism Limits of multilateralismLimits of regionalism
Anti-closenessExtra-regional interestsTheory conforming
Slow progress, complication, domination & exclusionThe conditions for free trade area may not be attainable in substance dueto divergence & by schedule and timetable.Guide against close regionalism both internally and externallyThe crucial interests of APEC economies extend beyond APEC.Trade discrimination induces unnecessary costs of trade diversion.
Finally, regionalism provides the opportunities for societies of member countries to
widen considerably their communication and mutual understanding. The socialization
effects in the process affect the convergence of public interests and identity among
different societies and cultural groups. Regional interests will emerge to replace the
national ones as greater flows of people, ideas, and products, activities across the regional
space, and social and political outlook of the general public will be broadened from the
national to a more international one. As such, regionalism will in the long run undermine
nationalism and pave the way for a truly globalized society.
The idea of “open regionalism” embodied in both the APEC’s concept and its practice is
certainly a great challenge to the centrifugal approaches of both nation-based and region-
based protectionism and mercantilism both internally and externally. (See Table 6) It is
based upon the principle of open, economic focus and voluntary participation24. Regional
structure and policy do not discriminate trade and investment with the rest of the world.
Economic issues are the primary policy focus and chief policy mechanism to consolidate
regional integration. Members do not have to cede sovereignty to any supranational
21 See Yamazawa (1997) “How should we approach the FEEEP issues in APEC?” the keynote addressto the International Symposium on APEC Cooperation for Sustainable Development, June18-19, 199722 Open regionalism is equated with open economic association (OEA) since the former is a highlyequivocal term yet the later best reflects the essence. The concept of OEA is developed by Yamazawa,see Yamazawa, 199623 ibid.24 See Yamazawa 1996
23
regional institution but actively participate in the collectively process. What’s more,
members are free to establish linkages outside the region without any constraints. Open
regionalism has a three-fold dimension: liberalization, facilitation and development and
built-in pragmatic objectives.
Table 7 Concerted Unilateral Approach
Organizing principle Voluntary, non-binding commitments vis-à-vis reciprocal, binding concessionalcommitment
Enforcement mechanism Peer pressure & recognition vis-à-vis negotiation & disputes settlement regimeMotivation Liberalization is in the interest of development of the liberalizing economy itself vis-à-vis
concession benefiting others as a price for securing liberalization in othersCharacteristics The characterization of “prisoners’ delight” in Asia Pacific
Consistent with growth strategy--opening up to the worldNo-leadership & no-Hegemony
Conditions Continued & substantial trade liberalization internally & joint liberalization externallyThe US’s demand on reciprocity perceived to be observed by othersThe EU’s commitments to liberalization perceived to be on track
If open regionalism is taken as APEC’s external principle, its internal principle is called
“concerted unilateral approach” (CUA). (See Table 7) In terms of its organizing internal
affairs, APEC advocates a voluntary, non-binding commitments vis-à-vis reciprocal,
binding concessional commitment among members. In terms of mechanism to deliver
policy, APEC applies peer pressure and recognition vis-à-vis negotiation and disputes
settlement regimes. To motivate members’ market opening procedures, APEC holds that
liberalization is in the interest of development of the liberalizing economy itself instead
regarding liberalization as a concession that benefits others as a price for securing
liberalization in others. APEC’s such characteristics can be called as “prisoners’ delight”
in Asia Pacific and it is consistent with the growth strategy of East Asian developing
economies, that is opening up to the world. Such modality of APEC would not need
depends upon one economy to be the leader and hence no Hegemony. But the success of
APEC is highly dependent upon Continued & substantial trade liberalization internally &
joint liberalization externally, hence the success of multilateralism. If successful, open
regionalism would also give rise to a more integrative identity to the region of diversity
as articulated in the APEC’s vision of building “a community of Asia-Pacific
economies”25. The case of APEC illustrates a new modality of regionalism and contests
how far a regionalism can go and how broadly it can incorporate economic, social and
political objectives in various realistic modalities under diversified economic conditions
and various public understandings across the world.
25 See Eminent Persons Group Report “A Vision for APEC: Towards an Asia Pacific EconomicCommunity” November 1993
24
What’s more, like “open regionalism” in Pacific, current politics of regionalism in
Europe also has a strong outward motion. The EC 1992 program preempted the
individual trade policy of member states, The Uruguay Round forced the EU to low trade
barrier Union wide including phasing out voluntary export restraints. The prolonged
economic recession and rising unemployment problem, the growing importance of East
Asian market, the increasing integration of Asia Pacific, the relatively declining trans-
Alantic economic relations and, above all, the organizing of East Asia prompt the
rethinking of the EU’s long-term engagement strategy towards East Asia.26 All this was
well reflected in the enthusiasm among the heads of states of the EU in participating the
ASEM meeting in Thailand in March 1996 and the subsequent development of between
the 15 EU members and their 10 East Asian counterparts.
26 See Pelkmans, in Yue & Tan, 1996
25
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To policy makers, the regionalism poses both challenges and opportunities. As partially
illustrated at the beginning, from the perspective of the world political economy,
regionalism has an important dimension in regional economic integration. Regionalism
affects economic welfare in terms of trade creation or diversion, import prices,
competition, economies of scale, resource allocation, factor productivity, sources of
finance, options for consumers, and exposure to new ideas, technology, products and so
on. Also as mentioned before, regionalism has politics hidden in side. Regionalism links
domestic and international political sources and the development of national and regional
institutions. Regionalism also has a dimension in the development of social discourses of
regionalisation. Moreover, regionalism is taking on an ecological dimension because of
the neighborhood effects. Owing to the complex nature of regionalism in relation to
economy, society, polity and ecological development, we need a multi-causal logic in
accounting regionalism.
Regionalism and Economic Integration
As a widely shared perspective among social scientists, the economic dimension of
regionalism aims at generating more trade, investment and economic growth. Countries
entering regional agreements to reduce their tariff and non-tariff barriers can result in
more trade and investment among themselves. Viewed from this dimension, regionalism
holds the potential to enhance the trading position. Regional integration can improve
term of trade of member countries vis-à-vis non-number ones as it can strengthen the
exports of member countries and weaken the trading position of importing non-member
countries. It can attract more FDI. Regional integration is a major mechanism in
attracting FDI as multinational companies would establish local production to overcome
regional discrimination. Both sound mercantilistic in nature, however. Recently
arguments for regionalism are growingly emphasizing the increase of economies of scale,
competition and efficiency27. Regional integration increases market size so that the large-
scale production is justified and the low production cost is obtained. Common market
permits factors of production to flow freely across borders, so firms will have better
chance to access to easy finance, cheaper labor, suitable technology, and larger consumer
base. Product and service can thus be provided at a lower cost. Regional integration also
26
can improve competition and efficiency. The increased number of competing firms will
result in greater efficiency, lower price and more options of products for consumers.
Moreover, there is an argument for enhanced social cohesion as a result of economic
integration. Factor mobility not only foster deeper market integration but also a higher
level of communication across culture, nation and different sectors of an economy.
Economic integration therefore may weaken nationalism and pave the way for greater
economic cooperation and social cohesion.
Regionalism, however, may also cause many kinds of market distortions such as trade
and investment bias against non-members directly and/or indirectly both in theory and in
practice. There are various compelling arguments for cautious approaches. For instance,
regional arrangements may induce bias against non-members, and formal arrangements
in Europe and North America have more bias towards intra-regional trade and
investments than informal ones like in East Asia as a number author argued28.
Specifically, there is also an argument that the cost of regional preferential trading
schemes in East Asia far outweighs the expected benefits and the actually execution of a
formal trading bloc is difficult29. Therefore, Lewis, Robinson and Wang30 propose that
there are gains from making APEC free trade area as broad as possible. They maintain
the global integration remains the most favorable outcome of all. A recent study by the
OECD31 goes further to argue that regional trading arrangements and multilateral trading
system general being complementary is not automatic but the result of deliberate policy
choice. It advocates that international multilateral surveillance against regional bias is a
must. Indeed, concerns for the destructive outcomes of the economic integration to the
national development are growing in both developed and developing countries. The
economic as well as social and political consequences of regionalism driven by market
mechanism begin to be highlighted. Trade and economic disputes at both regional and
international level seem increasing. The increasing potentials of Labor and capital
conflicts may threaten domestic social order. Fundamentally, nations are still very much
27 See El-Agraa (1994)28 See Dhar and Panagariya, (1994) gravity model analysis of trade flows.29 Panagariya (1993) examines three approaches to regionalism in East Asia. He argues that AFTA’scosts are far outweigh benefits; a formal East Asian trading bloc along the lines of the EC is difficult toexecute because of the diverse levels of protection in East Asia and possible US retaliation; openregionalism is good in long run but may be resisted in the short run in East Asia because of adverseeffect on terms of trade.30 Lewis, Robinson and Wang (1995) examine three approaches: APEC FTA, partial FTA, and therelative benefits of APEC FTA and global trade liberalization.31 For details, see OECD (1996) report on the Workshop on Regional Integration and its Place in theMultilateral Trading System held in July 1995.
27
concerned about how benefits and costs of the integration are distributed both internally
and externally. As such, regionalism even aiming at reaping the benefits of economic
integration is called for revaluation in a broader perspective. Whether regionalism is
“building blocks or stumbling blocks”, a stepping stone or halfway house towards
multilateral rule become a function of how potential conflicts of economic interests
among difference countries, between labor and capital, between producers and
consumers, and between competing firms are resolved. It is also a function of how the
emerging regional governance structure is developed. Looking from this perspective, we
begin to realize that regionalism is not a structured format with fixed norms and
unchangeable objectives. Regionalism is shaped and will continue to be shaped by
various social, economic and political forces. What is important is to make sure that
regionalism won’t be taken advantage by those narrow focused objectives and won’t
become the battleground of those conflicting forces.
Regionalism and Political Cooperation
Over the past two decades, integration of global economy has been accompanied by
uneven growth in different parts of the world and by growing economic and political
uncertainty. To the general knowledge, globalization of financial markets at best is a
mixed blessing. It has speeded up economic and technological process. But the capital
mobility driven by speculative activities is potentially disturbing and dangerous for
inexperienced, small and relatively poor nations. In fact, it can gravely undermine
governments’ macroeconomic management capacity, reduced national tax income and
effectively put governments into debts. The growth of international trade generates new
benefits around the world. It also has brought tremendous pressure upon income
distribution and employment structure among different nations, between different
economic sectors, between producers and consumers, between capital and labor. Global
competition disciplines companies’ behavior and rationalizes them into the most efficient
way of production. It also has disrupted the established industrial structures, leading to
the replacement of skills by technology and labor by capital and wage stagnation.
Corporate downsizing, plant relocation and structural unemployment in certain sectors
and geographical locations have become a worldwide phenomenon. International
production increases geographical scope of transitional activity and interdependence of
trade, investment and technology. It also has led to increased erosion of national
28
autonomy, vulnerability from the international shocks and disturbances and the potential
of national economic “hollowing-out”.
In responding to these problems, governments have adopted various policies to mitigate
the cost and buffer the transition. But the current trend is that governments are less
willing to get involved with social subsidies. Indeed, they have reduced their scope of
action in economic management and retreated from their social obligations. Slashing
public spending in health, education, social insurance in many countries is the case. All
this generates both heated economic, political and social problems. Given its highly
contested dynamics and logic in reality, regionalism, from the perspective of the world
political economy, like globalization is far more complex and uncertain in nature. The
notion that regionalism can serve as effective interface in reorganizing international
political economy from the parochial mode of national development towards the
enlightened system of one-world prosperity, therefore, requires comprehensive and
critical scrutiny.
Regionalism and Social Cohesion
From history, modernization, and social development perspectives, some analysts
maintain that regionalism, to be justified, has to have its profound social root in a way of
the development of regional cohesion and awareness. Economic and political factors
aside, the proponents of this view highly stress the fundamental impacts of history,
geography, culture, social relations and beliefs, values, norms and practices in the
development of regionalism along with their distinctive features. In the global resurgence
of identity and belonging, regional awareness or identity search movements are also
growing. But the linkage between the identified ideational factors and the concrete
schemes of regionalism remain to be a difficult subject in both in theory and in practice.
Regionalism and Eco-systemic Balance
Another emerging dimension of regionalism has gained growing recognition, which is far
broader and more compelling than any other dimension. It is helping crystallize the
notion of a community with a common future. It is the regional ecological sustainability.
Regional integration transcending the national borders cause the “spill over” of
environmental problem into neighboring countries that demands a regional approach
29
paralleling the bilateral and global ones. Those regional environmental issues such as
land degradation, desertification, deforestation, and acid rain, and poverty-induced and
regional development-related environmental changes and the consequences of the cross-
border environmental disputes may be largely confined in certain regions. They are less
severe and pressing than global ones. So concerted regional solutions can be explored. In
times when a global consensus concerning a global environmental issue is difficult to
reach, like-minded countries may join forces to alleviate the impact on their regional
basis. But to what extent, regionalism can play a role in environmental development need
further exploration both on theoretical and empirical grounds.
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To conceptualize regionalism in a relatively systemic manner, a multidimensional
paradigm is constructed as follows (see Figure 9). From the economic dimension,
regionalism may be seen in cell I, II to cell III. From pure economic point of view,
regionalism falls squarely in cell I. It implies economic regionalisation coupled with
certain effects of economic policy. Its sources are chiefly the private market functions
facilitated by some market conforming government policy with neither significant
political implications nor profound social consequences. Conventionally this is what
some economists described as “shallow integration”, sociologists, “informal integration”
and political scientists, “soft regionalism”. This is a stage of regional economic inter-
dependence. Higher economic transaction in the region may led to higher level of
economic inter-dependence within the region vis-à-vis the rest of the world.
From political and institutional viewpoint, regionalism can be grappled from a broader
base, which can be indicated from cell I to cell V. Regionalism like many other
institutional phenomena is politically contested. This is because there is no “natural”
region in the world. All regions are defined to suit for certain purposes: Whom is to be
included and whom excluded and when and how. As a matter of fact, political
interactions usually constitute a great part of regional development process and signing
regional agreements and setting up institutions are a major expression of regionalism.
The variation of regionalism in terms of the purpose and institutional form remains to be
the central and contested issue for many current regionalist schemes. The purposes such
as responding to external challenges, coordinate regional positions in international
30
institutions and secure welfare gains by promoting regional commons, and the
institutional forms such as formal or informal, extensive or intensive, and loose or tight
to manage regional inter-dependence constitute the major part of a regional governance.
Regionalism for security concerns is even more politicized. Moreover, the consequence
of regionalism, in terms of the welfare gain or loss, is both an economic and political
issue for both member economies and non-member economies. What’s more, the
intensive flows of goods, capital, and people would inevitably nurture the development
of multi-channel and complex economic and social networks by which ideas, attitudes,
norms and rules of all kind are transmitted through the economic transactions across the
region. It may eventually lead to the creation of a transactional civil society, a
“consolidified regionalism”, so to speak. This formation of a new region, therefore, does
not necessarily coincide with the borders of states, nor does it presuppose any particular
impact on the relations between the states of the region. Many across-border growth
triangles, industrial corridors are of this kind. On the whole, this view suggests, regional
inter-dependence is the precondition of regionalism, be it in the form of economic
development, or social-political one or both.
From social and epidemic point of view, all regions are to some extent subjectively
defined and can be understood as the so-called “cognitive regions”. A region can be
seen as an extended form of a nation, a mental discourse that is historically contingent
and socially constructed. Regional cohesion provides the real base for regionalism. The
process factors in terms of ethnicity, race, language, religion, culture, history, geography,
consciousness of a common heritage, and economic and political development construct
the regional cohesiveness and lead to the formation of regional awareness and identity,
the corner stone of regionalism. The strength of regional cohesion would determine the
strength of regionalism. The key lies in searching for the clues of how regionalism and
regional identity are defined and redefined and how mutual interests are cultivated and
how shared understandings are accepted. Regional identity can be developed by long
time sophisticated arguments such as the influence from academia and pressure groups.
Regionalism also can be shaped by popular sentiments such as East vis-a-vis West, South
vis-a-vis North. Regionalism therefore extends beyond the spheres as previous views
identified and reaches to cell IX. Regionalism seen from social and epidemic views is
therefore a social phenomenon that mixes with truth of historical origin and reality, and
myth of political making.
31
Figure 9 A Paradigm of Objective & Outcome of Regional Integration
OBJECTIVE
OUTCOME
ECONOMIC
OBJECTIVES
POLITICAL
OBJECTIVES
SOCIAL
OBJECTIVES
ECOLOGICAL
OBJECTIVES
AS ECONOMIC
INTEGRATION
T& I intensity;Structural
compatibility;policy
convergence...I
Exercisepreference;
Insulate externalImpacts;
Regain controlIII
Known;Closeness; andConvenience
VII
Efficient use ofnatural resources
due to scaleeconomies
X
AS POLITICAL
COOPERATION
Regimesmanaging
Inter-dependence;
Public good;Transaction cost
II
Security,Hegemony, and
Economicdevelopment
IV
Compatible inValue, belief,
andsocial system
VIII
Efficient use ofnatural
resources due toeffective
management
XIII
AS SOCIAL
COHESION
Establishment ofacross boarder
channels,networks, trust
V
Convergence ofIdeology,
Belief,Expectation
VI
UnderstandingAnd
Appreciation
IX
Publicconscience ofenvironmental
protection
XV
AS ECO-SYSTEMIC
BALANCE
Establishingeconomic valuesof eco-resources,product, service
XI
Coordinatedsystems
promotingenvironmental
values, protectionXII
Appreciation ofnature as part of
humandevelopment
XIV
HumanSystem as partof ecological
system
XVI
The ecological dimension of regionalism constitutes the “outer-space” of regional
schemes and is progressively permeate into both theory and practice (from cell X to cell
XVI). Given the unevenness of world development in different parts of the world, eco-
systemic approach calls for a major change in all aspects of human to human and human
to nature relations. It undoubtedly has a huge impact upon economic, political, and social
dimensions of regionalism.
The paradigm that distinguishes four-dimensional objectives of regionalism on one hand
and four consequential impacts of regionalism on the other is a heuristic devise in order
32
to understand the broad implications of regionalism. It is attempted to locate regionalism
in a wide range of dynamic perspectives, where economic, political, social and our
knowledge of the environment may collectively construct a broad framework to capture
the multi-dimensional nature of the developments of regionalism.
5HJLRQDOLVP�LV�LQ�GHPDQG�
Indeed, regionalism has become the world reality across economic, political, social,
institutional and geographical dimensions. To policy makers, there are a number of
reasons why regionalism is attractive and can constitute an effective policy instrument.
The first is the neighborhood effects. Regionalism encourages close international
relationship, as cross-border externalities may be a great advantage to be explored or
issues of common concern to be dealt with collectively. Secondly, regionalism may take
on various norms of flexible organizing principle that can effect economic liberalization,
political cooperation, social cohesion and collaboration to combating regional
environmental problems without having to incur serious problems such as free riders,
security trade-offs, ethnic tensions and the “tragedy of the commons”. Regionalism does
not necessarily require strict reciprocity on issue such as trade that multilateral
organizations insist upon. Thirdly, regionalism allows closely related nations to
coordinate their efforts on issues of common concern more easily, deeply and efficiently
than through multilateral lengthy negotiation schemes. It allows various venues of
cooperation and coordination particularly at the grass-roots level. Fourthly, there may
have some existing structures of regional pattern or network such as trade, investment,
production, labor, market and intensive social and political interactions to effectively
sustain the deepening and widening process of regionalism on those and other related
issues. Finally, mercantilism and protectionism always pose potential threats to peaceful
international order. Market liberalism may bring about destructive effects upon national
development and incur disparities at all levels. Attempting to move to the track of social
liberalism, multilateralism at current stage is not without exclusion of the week and the
poor, and the domination by the strong and the rich. Regionalism in this regard can be an
alternative option to balance power and adjust interests in spite of its own limitations and
constraints. Indeed, given the fact of the increased concentration of economic integration,
political cooperation, social interaction and institutional construction at the regional
level, regionalism has began to play its role in the world political economy.
33
5HIHUHQFHV�
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