Economic Integration for the Asian Century: An Early Look at New Approaches

Supporters of a liberal international economic system have long regarded regional organizations such as free trade areas and customs unions with ambivalence. On one hand, these organizations can have a stronger political base than multilateral institutions such as the WTO, and this can make trade liberalization and integration easier to achieve and maintain. On the other hand, regional organizations potentially could splinter the global economy, since their trade liberalization and economic integration effects are generally limited to bloc members. However, in recent years two new and very different forms of integration have arisen in Asia and the Pacific Basin. These approaches significantly depart from the traditional paradigm of discriminatory blocs. The first approach is a micro approach, in which small subregional groupings (often called growth triangles) have emerged. These are not preferential trade blocs per se, but rather are transnational areas that function primarily as diverse, unified bases for integrated investments and related activities by multinational firms. Growth triangles may be created by market forces or sponsored by governments, but even the latter generally are not formal governmental organizations. Interestingly, participants in the major growth triangles include not only states, but also provinces and other subnational areas. Each growth triangle offers the potential to economically integrate its transnational area, but if a triangle grows and becomes more formalized it also might present the same type of splinterization and discriminatory trade concerns as traditional free trade areas and customs unions. The second approach is a macro approach characterized by efforts aimed at super-regional economic integration. The Asia-Pacific Economic Cooperation forum (APEC), for example, includes members from Asia, Oceania, and North and South America. The non-governmental Pacific Economic Cooperation Conference (PECC)-which consists of a grouping of business leaders, scholars, and government officials from each member country - also spans those four continents. Neither PECC nor APEC is a treaty organization imposing binding obligations on its members; rather, each deals mainly in research, consultation, and coordination. In addition, neither organization has become an economic bloc in the traditional sense. Rather, both APEC and PECC have worked, in their respective ways, for open regionalism. This distinctive concept is at odds with the traditional preferential view of regional integration, and it holds the potential to both further liberalize trade among organization members and simultaneously extend the benefits of trade liberalization to non-members. These experimental forms of economic integration (and especially the macro approach of APEC and PECC) thus may have significant effects on the international economic system, including the promotion of global integration. In particular, the consensual nature of the macro approach encourages participation and dialogue, and this in turn facilitates cooperation and agreements in areas of common interest that (even when relatively mundane) can reduce transaction costs and encourage greater regional trade. These new forms of integration also might be useful in other areas of the world, such as Latin America, where repeated attempts at formation of a Free Trade Area of the Americas (FTAA) have been unsuccessful and where existing, traditional regional blocs have been marginally successful at best. In the years since this article was written, Asia and the Pacific Basin have undergone significant economic upheaval and slowed growth. Yet the regional economic integration efforts described in this article have continued and have worked (sometimes at a modest pace) to further regional economic integration. This article therefore continues to offer a useful conceptual discussion of these organizations and their radically different nature from more traditional regional trade organizations.