1	
  	
  International Political Economy
Case Study
Professor HIWATARI Nobuhiro

East Asian Regionalism-New architecture of Economic Cooperation

Research Paper

Dodi Sontany
51-128228
MPP/IP
Graduate School of Public Policy
The University of Tokyo
2013-07-22[Type	
  text]	
  
	
  

2	
  
	
  

Chapter 1: Introduction
In Europe there is European Union, in Africa there is African Union, and In SouthAmerica there is MERCOSUR. Those three institutions are an economic and political agreement
based on regionalism with purpose of regional integration. The idea of East Asian Regionalism isalready existed since the end of Second World War but the process faced much turbulence andstalled for long time. In the midst of global economic turmoil, Asian region instead has enjoyedrapid development and booming of middle class society. The new middle class society thatemerged from the poverty elevation has mainly the outcome of rapid economic development inEast Asia. The idea of regionalism that was abandoned during Asian Financial crisis is notdisappear. After the Asian Financial Crisis, the idea once again being promoted to support thesustainability of the economic growth and regional peace.
The initial development of regional cooperation started since the creation of Asia Pacific
Economic Cooperation (APEC) in 1989 with main purpose to be a forum for Asian Pacific[Type	
  text]	
  
	
  

3	
  
	
  

countries to talk and institutionalized mainly economic cooperation1. After the creation of APEC,
the momentum of Asian regionalism has gradually developed. Several years after the creation of
APEC, former Prime Minister of Malaysia proposed the creation of free trade agreement
inclusive only for Asian countries; he called the plan as East Asia Economic Caucus. However
the plan was failed due to strong opposition from US and Australia. Using its hegemony, US didpressure Japan and South Korea to reject the proposal. Thus the proposal instantly failed to
become a reality.
After the Asian Financial crisis, many Asian nations lose their faith to APEC for its
incapability to solve the crisis. Instead, ASEAN countries tried to continue the previous idea byinviting China, South Korea, and Japan to form ASEAN+3. In 2001 meeting in Brunei, China
and ASEAN formally establish free trade agreement. The FTA has dramatically increased thetrade of goods and service within the region. According to ADB report Asia 2050: Realizing the
Asian Century, By year 2050 Asia will doubling its share of Global GDP share to 52 percent.
Asia will regain its dominant economic position it held 300 years ago. As Asia will reach Europe
level in the future, creating regional institution will be necessary to promote sustainable growth2.
Definition of Regionalism:
The definition of Regionalism is the construction and utilization of multilateralintergovernmental institutions to share information, to develop, enforce common rules andregulation and to settle disputes based on shared geographic space3. The initial form ofregionalism in Europe was began from the creation of a series of economic cooperation.
	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
1

	
  Liu,	
  Fu-­‐Kuo.	
  Asian	
  Regionalism,	
  Strategic	
  Evolution	  and	  US	  Foreign	  Policy	
  in	
  Asia:	
  Some	  Prospects	
  for	
  Cross-­‐Strait	
  Development.	
  The	
  Brooking	
  Institutions	
  Publication.	
  June	  2008.	
  2
	
  ADB	
  Report:	
  Realizing	
  Asian	
  Century,	
  Asia	  2050	  3
	  Liu,	
  Fu-­‐Kuo.	
  Asian	
  Regionalism,	
  Strategic	
  Evolution	  and	  US	  Foreign	  Policy	
  in	
  Asia:	
  Some	  Prospects	
  for	
  Cross-­‐Strait	
  Development.	
  The	
  Brooking	
  Institutions	
  Publication.	
  June	  2008.	
  [Type	
  text]	
  
	
  

4	
  
	
  

Historian saw the creation of European Coal and Steel Community as the earliest form ofregional integration. Therefore to be able to achieve East Asia free trade region will lead to thecreation of East Asia Community.
According to Paul Evans in “Remapping East Asia”, regionalism is the expression ofcommon sense of identity and destiny combined with the creation of institutions that express that
identity and shape collective action. On the other hand, regionalization is the expression ofincreased commercial and human transactions in a defined geographical space 4. He describes
regionalism as a reflection and amplifier of an underlying regional identity or consciousness.
Regionalism is also a collective call to action for the increasingly important East Asian weight in
the world.

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
4

	
  Evans,	
  Paul.	
  Between	
  REMAPPING	
  EAST	
  ASIA	  Regionalism	
  and	
  Regionalization:	
  Policy	
  Networks	
  and	  the	  Nascent	
  East	
  Asian	
  Institutional	
  Identity.	
  Cornell	
  University	
  Press.	
  New	
  york:2005.	
  [Type	
  text]	
  
	
  

5	
  
	
  

Research Question：
1.

Seeing European Union, Mercusor, African Union, why in East Asia several regional

institutions coexisted. Those institutions were gained momentum and stalls without producing
any binding institution?
Hypothesis:
A powerful state judges that the functions or norms of an existing regional institution do notaccord with its own interests and then commit itself to another institution which would serve its
own interests better.5
Approach：
In this paper, the analysis will focus mainly in analyzing the development of APEC and
ASEAN+3 and how great power influence the organization to fit their interest. The timeline will
be categorized into three parts : Regionalism after the Second World War, Regionalism after the
Asian Financial Crisis and Regionalism after the 2008 Global Financial Crisis. The study will
analyze the factors that lead failure in APEC and the dynamic volatility of ASEAN plus Three.

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
5

	
  Terada,	
  Takeshi.	
  East	  Asian	
  Regionalism:	
  Power,	  Interest,	
  and	
  Institution	
  Building.	
  Public	
  Lecture	
  in	
  National	  University	
  of	
  Singapore.	
  25	
  October	
  2010.	
  	
  [Type	
  text]	
  
	
  

6	
  
	
  

Methodology
The methodology used for this research paper is by analyzing both primary data andsecondary data that has been researched by numbers of scholars in this field. The analysis uses
different point of views by scholars’ perspective about US, China, Japan.
Trends in East Asian Regionalism:
The concept of integrating East Asian country can be traced back to the ancient Chineseorder of tributary states. During the Second World War, the idea of East Asia regionalism had
become the slogan of Empire of Japan to create an Asian bloc with name “Greater East Asia CoProsperity Sphere”. Although many people argues the slogan is only Empire of Japanpropaganda for domination over Asia, but the Intention of regional integration was already exist
since the era of imperialism.
[Type	
  text]	
  
	
  

7	
  
	
  

During the modern era, there was a popular view of “the flying geese pattern” whichsuggests Japanese economic success in 1960s as the leader in regional development followed bySouth Korea, Taiwan, Hong Kong, and Singapore as the four Asian tigers. The concept of flying
geese pattern derived itself from the technology transfer from the most advanced country in theregion to the least developed country. In this case is from Japan to newly industrialized four
Asian tigers and on the bottom line is the ASEAN countries and also China. In 1967 theorganization of South East Asian countries or ASEAN was formed. The organization was started
from 5 members and continues growing until now the total of 10 member countries. The purposeof this organization is to promote regional cooperation and provide a forum for regional dispute.
The later development of East Asian Regionalism will be mainly the expansion of ASEAN
countries with other countries in Asia Pacific.

Chapter 2 Building East Asia Regionalism:[Type	
  text]	
  
	
  

8	
  
	
  

Post Great War –Asia Pacific Economic Cooperation (APEC)APEC is a forum for 21 members of Asia Pacific countries that have purpose forfacilitating economic growth, cooperation, trade and investment between the member countries.
APEC serve as intergovernmental grouping that has operated with basis of non-binding
commitments, open dialogue and equality among all of the participants. The decision made isbased on consensus and the commitment is undertaken on voluntary basis6.
According to Richard Stubbs, APEC has failed to live up to early expectations. Its initial
success in combining diverse group of economies into a single organization proved to beineffective. APEC itself contains the member of some of the richest countries and the poorest
countries in the world. The division between Anglo-American members (US, Australia, New
Zealand, and Canada) and Asian countries (China and Malaysia) has torn apart the cohesive
voice in APEC forum. The agreed APEC goal of achieving trade liberalization has become
difficult to achieve. In this matter, the Anglo-American bloc proposed more legally binding
institutionalized trade liberalization7.
John Ravenhill in his book, APEC and the Construction of Pacific Rim Regionalism,
mentions that the economic benefit that occurred in the Asia Pacific countries happened becauseof the effect of globalization. Ravenhill critics APEC as unable to progress in key areas, lacking
an effective secretariat, and suffering from fatally flawed institutional design and insoluble
conflicts of interests between member states and the economic interests they have to reconcile.
Interestingly although Ravenhill is very critical of APEC performance, he is not pessimistic with

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
6

	
  Definition	
  of	
  Asia	  Pacific	
  Economic	
  Cooperation	
  derived	
  from	  APEC	  website	  “about	  us”.	
  	
  Stubbs,	
  Richard.	
  ASEAN	  Plus	  Three:	
  Emerging	
  Asian	
  Regionalism?.	
  Asian	  Survey	
  42	
  (May/June).	
  440-­‐55.	
  University	
  of	
  California	
  Press.2002.	
  7[Type	
  text]	
  
	
  

9	
  
	
  

trade liberalization in Asia Pacific. He also states that trade in Asia Pacific is highly influence bydomestic politics and all the parties have incentives to defect8.
Post 1997 Asian Financial Crisis -ASEAN Plus Three (APT)
According to Stubbs, some obstacles are still blocking the progress of creating East Asia
Regionalism9. The first problem is there is a strong sentiment of anti-western power in many
East Asian countries. Some people believes that Asian Financial Crisis was happened because
western investors that ruin the stability of Asian financial stability. The rise of popularnationalism limits the ability of politicians in policy making process. Secondly, there are also
domestic political problems that create political instability and constant changing leadership. For
example, Japan under DPJ was having political turmoil with changing prime minister several
times. The political situation in Indonesia is also not so stable with corruption scandals in thepolitical leadership. Thirdly there is a conflicting interest among the ASEAN plus Threemembers. There is mistrust between China, Japan, and South Korea because of border conflicts
and historical issues. Even some South East Asian nations are also distrust China and Japan
leadership. Fourthly, although a series of free trade agreements are signed or currently negotiatedamong the countries but it might create distraction that divert the government’s effort to focus indeveloping regionalism effort. Lastly, the United States endorsed Trans Pacific Partnership
might be more appealing and thus distract the attention of ASEAN plus three countries to make aprogress.
Financial Regionalism as a response to Asian Financial Crisis:

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
8

	
  Ravenhill,	
  John.	
  APEC	  and	  the	  construction	
  of	
  Pacific	
  Rim	
  Regionalism.	
  New	
  York:	  Cambridge	
  University	
  Press.	
  2002.	  	  9	  Stubbs,	
  Richard.	
  ASEAN	  Plus	  Three:	
  Emerging	
  Asian	
  Regionalism?.	
  Asian	  Survey	
  42	
  (May/June).	
  440-­‐55.	
  University	
  of	
  California	
  Press.2002.	
  [Type	
  text]	
  
	
  

10	
  
	
  

William Grimes explains that the result of 1997 Asian Financial Crisis creates an
incentive for East Asian Government to work to deepen regional financial integration. They tried
to create institutions to handle the possible currency crises that might appear in the future. In fact
East Asia is a region that becomes a top supplier of surplus savings. The region is also the largest
owners of dollar assets and a major market for US financial institutions. The 1997 crises proved
to be the vulnerability of East Asian Economies in facing globalization.
he Chiang Mai initiative is one of the financial regionalism efforts that were created withpurpose to increase the monetary defense of East Asian countries. It was produced in year 2003
as the result of ASEAN+3 finance ministries meeting. The mechanism of Chiang Mai initiativeis creating a fund to defense against speculative attack. It thus lowers the dependency to IMF in
the event of crisis.
The second type of East Asian Financial regionalism is the formation of local currency
bond market or Asian Bond Market Initiative. The purpose is to lower the vulnerability of Asian
countries against the movement in the value of the dollar. Another purpose is to develop
domestic bond market in East Asia.

Post 2008 Global Financial Crisis- Towards East Asian Community (EAC)
The creation of European Economic Community (EEC) in 1957 had form a common market
and bringing economic integration in European continent. EEC was later become the root ofmodern regionalism institution called European Union. While European Union (EU) has beenpraised as a successful model regional integration framework to follow, many other regionalisms[Type	
  text]	
  
	
  

11	
  
	
  

got inspired by it. On the other hand the creation of East Asian Economic Community was said
to be able to follow the path of more legally binding institutions for East Asian region.
East Asian Economic Community (EAEC) will not only able to accelerate the economic
liberalization of East Asian countries but also offer a promise of geopolitical stabilization. The
integration will support the sustainability of economy growth. The first East Asia Summit (EAS)
in 2005 was thought to be the initial step to create EAEC. Unfortunately in spite of great
ambition in the summit agenda, there was less detail unveiled.
Chapter 3 Positions of Key Actors in East Asia:
The United States of America
Lieberthal in The American Pivot to Asia (Brooking Institute) explains the new American
pivot in Asia under Obama administration. He explains that Obama is committed to play aleadership role in Asia for decades and recognized the importance to ensure the balance power ofplayers in Asia Pacific. In security issue, the United States tried to stay neutral over the borderdispute in South China Sea. The reason is US do not want to hesitantly antagonized China andhurting both countries relation. In 2010, the United States joined the meeting of ASEAN
Regional Forum in Hanoi and stated clearly about American vital interest in the South China
Sea10.
Bergsten explains two fundamental issues regarding East Asia Regionalism building
which is bilateral and systemic. The United States aware of bilateral issue here of thediscriminatory impact of East Asia Regionalism. He made estimation that the United States
	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
10

	
  Lieberthal,	  Kenneth.	
  The	
  American	
  Pivot	
  to	
  Asia.	
  Brooking	
  Institute	
  Publication.	
  Foreign	  Policy	
  article.	
  December	
  2011.	  	
  [Type	
  text]	
  
	
  

12	
  
	
  

could lose around $25 billion of annual exports as a result of the tariff discriminatory from theASEAN+3 free trade model. The systemic issue is the potential clash between China-led Asia
and US-led West for leadership of the global economy.
There is a significant difference between US attitude towards European integration andEast Asia integration. The process of European Integration began when the United States was
still dominant economy and top military power. In fact, Europe is already in the process of
unification especially after the war many countries think unification is the best way to recoverfrom the war. Meanwhile US fells skeptical towards the quality of Asian model of cooperation
framework. The American feels the threat of substantial discrimination against US trade.

China
1997 Asian Financial crisis and 2008 global financial crisis have greatly influence Chinas
attitude and policy towards regionalism in Asia Pacific. According to Ming Wan, China has
never considered the high value of Asian regionalism (Wan 2010). On the other hand, China has
carefully stated their opinion and not openly opposes all the ongoing cooperation frame work
regarding Asian Regionalism.
John Ravenhill states that East Asia regionalism is difficult to achieve if Japan-China rivalry for
influence in the region is still the main motivation. After the 1997 Asian financial crisis, Japans
proposal about the creation of Asian Monetary Fund was rejected by China.
China’s image as communist sabotage and revolution champion is no more in South East
Asia. Many South East Asia nations welcome China’s rise and realized its economic benefit (Liu[Type	
  text]	
  
	
  

13	
  
	
  

2008). Throughout the years of China opening, Beijing already establishes position of
dominancy as similar to U.S relationship with Latin American states. The conclusion of
ASEAN-China Free Trade Agreement has served not only the close relationship between the tworegions. Although South China Sea border dispute is a real matter that deteriorate the politicalsituation between China and some South East Asia nations but it proves to not disturbing thetrade and economic relations.
China, not surprisingly, is worried about these new developments. They in many ways
reinforce China's abiding suspicions about the United States. In Chinese eyes, the UnitedStates has always been concerned primarily with protecting its own global dominance -which perforce means doing everything it can to retard or disrupt China's rise. That
America lost its stride in the global financial crisis and the weak recovery since thenwhile China in 2010 became the world's second-largest economy has only increased
Beijing's concerns about Washington's determination to postpone the day when China
inevitably surpasses the United States to become the world's most powerful country.11
Japan
Former Prime Minister Hatoyama did mention the concept of East Asia Community(EAC) emphasizing the region collective effort to build a more efficient and effective system tomanage trade cooperation or other issues like border conflict and security cooperation. Former
Prime Minister Kan was also promoted same kind of idea. Former Prime Minister Noda waseven emphasizing the right timing for East Asia Regionalism to come for real.

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
11

	
  Lieberthal,	  Kenneth.	
  The	
  American	
  Pivot	
  to	
  Asia.	
  Brooking	
  Institute	
  Publication.	
  Foreign	  Policy	
  article.	
  December	
  2011.	
  [Type	
  text]	
  
	
  

14	
  
	
  

According to Yul Sohn, Japan interest in promoting Asian Regionalism is primarily tobalance China’s growing soft power (Sohn 2010). Tokyo’s idea to create East Asian Community
aims to create value based community with distinctive membership. Japan wants to bolster theties with ASEAN countries and show to global community about Japan’s influence in the region.
The expanding East Asian market is obviously a great help for Japan to cure its chronic
economic condition. Sohn argue that Japan new thinking on regionalism in 21st century is tocounter China in the regional leadership12.
South Korea
According to Chung Jin-young from Korea Economic Institute, South Korea is a key rolein the future of East Asian regionalism. South Korea is the third largest economy in East Asiaand its size is comparable with ASEAN in terms of GDP per capita. Over the years South Korea
economy has grown closer to China, Japan, and ASEAN. In recent years, South Korea has
played active role in ASEAN plus Three and support other regionalism building effort. Chunganalysis can be summarized into two points. First of all, the momentum for closer regional
cooperation has already taken off and can hardly hold back or reversed. As the East Asian region
keeps growing, East Asian economic integration will be driven by market force and it will be
deepened. Secondly, South Korea should work together with ASEAN and play as a facilitator or
mediator role between the rivalry of China bloc and Japan bloc in regionalism process. 13

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
12

	
  Sohn,	
  Yul.	
  Japan's	
  New	
  Regionalism:	
  China	
  Shock,	
  Values,	
  and	  the	
  East	  Asian	  Community.	
  Asian	  Survey.	
  Vol.	
  50,	  No.	
  3	  (May/June	
  2010)	
  (pp.	
  497-­‐519).	
  2010.	
  13
	
  Chung,	
  Jin-­‐Young.	
  East	  Asian	
  Regionalism:	
  Moving	
  Forward-­‐	
  South	  Korea	  and	
  East	  Asian	
  Regionalism:	
  Which	  Path	
  Ahead?.	
  The	
  Korea	  Economic	
  Institute.	
  Washington	
  DC:	
  2004.	
  [Type	
  text]	
  
	
  

15	
  
	
  

ASEAN
Although ASEAN is considered as weaker player in international politics but it has asignificance importance in the effort to form regional grouping. According to Liu, ASEAN
central role in regional multilateral cooperation is emerging again after its earlier peak in 1990s.
After the recovery from terrible Asian Financial Crisis, South East Asian nations raised once
more to be the center of growth and growing market. The new trend toward regionalism shows
the repositions of ASEAN at the center of regional development. In spite of rivalry between
China and Japan in the regional leadership, ASEAN proved able to launch ASEAN plus Threeand East Asia Summit. ASEAN had successfully to infuse the ASEAN Way which is the valueof reaching decision by consensus to the regional institution building process. 14
Chapter 4 Conclusion:
The hypothesis is proved that the reason there are so many institution created and themembers keep jumping around is because powerful state lose interest in the functions or normsof the existing institution. Thus Regionalism in East Asia will not be achieved if the players keep
jumping around and make a new grouping
With now the shifting regional architecture in East Asia, the great power previous
strategy towards East Asia will be changed. As China is growing militarily and having one of thehighest military expenditure in the world. Many scholars suggest containing and antagonizing
China will not be a wise strategy for great power. Recent years, China have tried to throw its
weight around especially regarding border dispute. In the future China might change its attitude

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
14

	
  Liu,	
  Fu-­‐Kuo.	
  Asian	
  Regionalism,	
  Strategic	
  Evolution	  and	  US	  Foreign	  Policy	
  in	
  Asia:	
  Some	  Prospects	
  for	
  Cross-­‐Strait	
  Development.	
  The	
  Brooking	
  Institutions	
  Publication.	
  June	  2008.	
  [Type	
  text]	
  
	
  

16	
  
	
  

by start to make friends globally. Helping in creating regionalism institution will be one of theChinese strategy to sustain growth.
One of the reason why trade liberalization difficult to achieve because East AsianCountries are still heavily protecting its market. Recent years, Japan was heavily guarded its
agriculture industry. But now the current Prime Minister Abe administration states theircommitment to liberalize Japanese agriculture sector. ASEAN country will have free trade
agreement by 2015 and most likely to expand to include other East Asia countries.

[Type	
  text]