Approaches to Regional
Economic Integration
Asia-Europe Compared
Giovanni Capannelli
Asian Development Bank
28 August 2008
Lecture at the GIARI Summer Institute
Waseda University, Tokyo
Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 1Integration models compared
Europe: gaining from shared regional sovereignty¾ Successful in economic terms, especially to reduce the income gap
among member countries¾ Deep institutional development (despite recent setbacks)¾ Single market, monetary union, move towards common foreign policy,
close political relations

Asia: growth, adaptability, and flexibility¾ “Light” on institutions¾ Strong economic logic (market-led integration)¾ Open regionalism (globalism and regionalism growing together)¾ Based on adaptability and flexibility (flying-geese model of industrialdevelopment)
Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 2

Integration models compared
EuropeFunctional
Dimensions

Cold War (external)

TriggeringFactor

World Wars (I and II)

Asian Financial Crisis of 1997/98
Regionalism in EU and NA

Leadership

Institutions

Pillars

Asia

Based on the German-Francoalliance at its start

No single hegemonic power

Functional role of small states

Increasing role of China

Wide and deepLight on institutions
Gradual institutional deepening

European Communities

ASEAN

Foreign & security policy

ASEAN+3

Justice and home affairs

East Asian Summit

Central role played by ASEAN

Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 3

Integration models compared
EuropeFunctional
Dimensions

Common Institutions
Modalities

Open method of cooperationintergovernmental cooperation
Strong, particularly successful for
low-income countries

Economic
Logic

Clear economic benefits formembers
Common trade policy

Sequencing

Regulatory
Approach

Asia
Intergovernmental cooperation anddialogue
no common institutions(only ASEAN secretariat )Strong and successful for low- andmiddle-income countries
Open Regionalism

Parallel developments:

Common market (free movement ofBilateral and plurilateral FTAs
goods, labour, and services)
CMI, ABMI, ABF (financial)
Monetary Union

De jure (legalistic, rule-based)

De facto (pragmatic, case-by-case)Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 4

Integration models compared
EuropeFunctional
Dimensions

Sovereignty

From national to shared regionalsovereignty

Asia
Shared only in very few cases

Principle of subsidiarity

Expenditure
Programs

Common Agricultural Policy

ASEAN Secretariat: established

Structural Funds

APEC, ASEM: marginal

Democratic system
Entry rules

Market economy

Political decision, case-by-case

Acquis Communautaire

RegionalIdentity

StrongWeak but latent

Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 5Sequencing of integration
Europe: Balassa scheme tailored for the region
 Free Trade Area
 Customs Union
 Common Market Monetary Union
 Political Union¾ Financial and Monetary Integration followed integration of realmarkets¾ Late removal of capital controls (end-1980s), after the creationof a single market
Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 6

Sequencing of integration
Asia: Parallel developments of real and financialintegration¾ High intra-regional trade and FDI shares¾ Proliferation of FTAs
¾ Financial crisis of 1997/98 acting as a trigger for closer regional

cooperation (ASEAN+3)¾ Much higher degree of global than regional financial integration¾ Facing a world where capital accounts are highly liberalized¾ Financial integration depends on speed of internal reformsand capacity to develop regional and global financial centers
Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 7

Asia-Europe reciprocal lessons
Differences in Asia-Europe approaches¾ Intra-regional differences within Asia are more

pronounced than within Europe¾ Inter-regional differences are focused on

institutionalization sequencing of integration¾ Learning reciprocal lessons: relax some of Asia andEurope unique features and principles to include
those from the other region and adjust to themApproaches to Regional Economic Integration: Asia-Europe Compared

Slide 8Lessons from Europe for AsiaEconomic dimension

GoodBadBackbone of economic laws and goodmarket governanceRigidities, especially in the labor market(slow change)

Clear definition of powers amonginstitutions

Subsidies (i.e. CAP) which hinder
competition

Regional exchange rate mechanism

Expenditure programs to buy off theopponents of integration

Clear rules for budget proportional
contributions

Preferring regionalism to multilateralism
when can the latter is possible

Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 9Lessons from Europe for Asia
Political dimension

GoodBadStrong political commitment andcooperation among key countries

Creating unnecessary “white elephant”
institutions

Sharing regional sovereignty(positive-sum game)

Adopting too complex rules andregulations based on equity principles

Creating common institutions and using
the open cooperation method

Using entry-rules in an ambiguous
manner (i.e. Turkey)

Principle of subsidiarity and smallcountry (minority) bias
Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 10

Lessons from Europe for Asia
Cultural dimension

GoodBadIncreasing countries’ efficiency throughcompetition, peer-pressure
Breaking the exclusive linkage between
nation and state

Increasing consciousness of belonging todifferent societies

Erecting barriers against immigrant
workers

Pretending to be always culturally
superior to other regions

Increasing role of media, civil society,cultural organizations
Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 11

Lessons from Asia for Europe¾ Transmission of industrial development

and economic growth from advanced to developing economies(Flying Geese) – This model can be applied to other developing
regions such as Africa¾ Market-driven economic dynamism

and interdependence (open regionalism, focus on productivity
and competitiveness)¾ Pragmatism, flexibility, and adaptability

to changing global and regional economic environment(including labour market flexibility)

Approaches to Regional Economic Integration: Asia-Europe Compared

Slide 12