The rise of regionalism in the Asia-Pacific region
The rise of regionalism in the Asia-Pacific region
What are the factors spurring the phenomenon of regionalism?
Vijayakumari Kanapathy provides an analysis.
Economic regionalism has become an important item in most
countries' national, regional and international agenda. And
Malaysia is no exception. The rise of large and powerful regional
trading arrangements and the lethargic process of the Uruguay
Round in the 1980s, that threatened the multilateral process, had
thrust Malaysia into the forefront of economic regionalism.
Malaysia has been the most active participant in the G-15, a
forum for the developing economies of the South, and the
proponent of the EAEC, a loose consultative forum to promote
economic cooperation among ASEAN and the East Asian economies.
The Uruguay Round has finally come to a successful conclusion,
after seven-and-a-half years of difficult negotiations. This has
engendered an improved international economic environment and has
allayed fears of the breakdown of multilateralism. Yet, the trend
towards regionalism continues. In fact, there has been a renewed
interest in regional economic cooperation in the Asia-Pacific.
The forces that continue to drive economic regionalism, and the
role of individual nations in this process has, of late, become
an interesting topic of discussion.
What then, are the factors underlying the rise of regionalism
in the Asia-Pacific region? A cursory survey of recent figures on
trade and investments indicate that while governments are in the
process of negotiating regional cooperative arrangements, a new
economic relationship is evolving in East Asia, essentially
driven by market forces. Fundamental shifts in domestic policies
towards greater reliance on markets and the private sector in
ASEAN and the East Asian economies to cope with domestic and
international challenges, seem to have unleashed strong market
forces that have induced a higher level of interaction and
interdependence.
The ASEAN states were forced to unilaterally liberalize their
economies to cope with the internal and external constraints to
economic growth in the mid-1980s. It is important to highlight
here that the sound macroeconomic management of their economies
during the crisis years enabled the ASEAN states to undertake
bold liberalization measures. They brought down barriers to trade
and investment by removing quotas and reducing tariffs, and by
relaxing the rules on foreign equity participation.
They also undertook tax reforms, foreign exchange adjustments,
privatization of public enterprises and loosened bureaucratic red
tape. These market reforms and the greater outward-orientation of
ASEAN economies led to strong and sustained economic growth,
thereby laying the foundation for enhanced regional cooperation.
The rapid growth of some of the more dynamic ASEAN economies
coupled with significant differences in their relative sizes has
somewhat altered their industrial structures. Thus, there has
emerged a degree of complementarity within ASEAN that has made
economic cooperation both desirable and feasible. This
complementarity is most visible in the area of labor. Cross-
border flows of labor among the ASEAN states has never been more
intensive.
In fact, those ASEAN states close to each other that have
exhibited greater complementarity in factor endowments have got
together to jointly exploit their comparative advantages. These
sub-regional forms of cooperation, commonly termed growth
triangles, are driven by market forces and have been led by the
private sector.
While economics might have granted the necessary conditions
for enhanced economic cooperation, political stability has
provided the conditions for these states to assume a pro-active
role in regional cooperation. These factors have combined to
inject greater confidence and willingness among the ASEAN states
to engage in regional cooperation and have provided them with a
clearer vision for their regional agenda.
Meanwhile, currency realignments and the limits exhibited by
industrial structures have forced the East Asian NIEs to seek
offshore production bases. This is yet another factor behind
regional integration in the Asia-Pacific. The sharp appreciation
of the Yen following the Plaza Accord, the rapid rise in
production costs in Japan and the NIEs, and the huge capital
surpluses accumulated by the East Asian economies have led to an
influx of foreign direct investments from these nations to the
ASEAN states. As a consequence, inter-regional trade and
investment in East Asia has accelerated since the late 1980s.
Apart from market forces, technological and organizational
changes have also played a key role in the regionalization
process. These dynamic changes have brought about the
globalization of the production process which has led to regional
distribution of production and vertical integration. MNCs are
generating intra-industry trade flows among ASEAN members through
their network of offshore operations in the region. In this way
they are gradually integrating the ASEAN states with one another
and ASEAN as a whole with the rest of the world.
A survey of the factors driving economic regionalism raises
the fundamental question as to whether it tends to weaken or make
redundant the several regional economic cooperative arrangements
in place or underway? It would appear that, while market forces
might drive regional integration, governments might want to
determine the pace and direction of the regional integration
process. In this respect, a sound understanding of the trends and
forces at work would aid nations chart their national, regional
and international agenda in a manner that would not jeopardize
their national interests, and at the same time ensure sustained
growth and development of the region in a mutually beneficial
way.
Regional groupings have emerged at different levels and with
different objectives, but trade promotion represents their common
concern. ASEAN, AFTA, APEC, the ARF and the EAEC are the main
regional cooperation schemes that directly affect the economics
and geopolitics of ASEAN, while the G-15 and the Cairns Group
represent groupings of like-minded countries with a more specific
agenda. For a small nation of only 18 million people and whose
external sector forms more than two-thirds of its GNP, Malaysia
naturally desires an open multilateral trading system.
AFTA aims to create a borderless ASEAN, while APEC is also
beginning to place greater emphasis on trade and investment
liberalization. Compared with many other countries in the Asia-
Pacific, Malaysia's liberalization process has already reached an
advanced stage, and therefore an increasingly borderless region
might not be that threatening. In fact, the APEC process might
even grant greater clout to small countries, like Malaysia, to
prize open some of the more closed markets in the region, which
they would not otherwise be able to achieve on their own.
The rise of regionalism in the Asia-Pacific does not
necessarily mean a decline in South-South cooperation that is
being actively promoted by Malaysia. Many of the original
concerns of selective market access and diversion of trade and
investment flows continue to plague developing economies, while
new pressures to accept social policies, standards and
institutional practices that threaten the autonomy in domestic
policy-making are increasingly evident. East Asia's growth and
prosperity might very well enhance its power in global decision-
making, but cooperation with the other developing countries in
the South with common concerns would certainly enhance the
region's clout to influence the post-Uruguay Round agenda.
It is interesting to note that while EAEC is becoming
increasingly remote, the dynamism of East Asia and the higher
level of interaction and interdependence in the region have
provided a stronger rationale and impetus to the concept of
cooperation. Unfortunately, when Malaysia originally proposed the
EAEC, it failed to effectively articulate the more logical
reasons behind such a forum.
With increasing interdependence in East Asia, domestic
economic policy decisions will become more inter-connected, and
therein lies the scope for increased friction. It is also
possible that rapid growth and development might transform the
industrial structures of some of the ASEAN economies and make
them more competitive with those of the NIEs. With the prospect
of increased competition and even conflict between the NIEs and
the near-NIEs, the need for a regional framework for policy
coordination and cooperation will become even more important in
order to foster healthy competition and avoid conflict.
It is even foreseeable that as this group of nations in
geographical proximity to each other achieve a higher level of
economic integration and interdependence, there will be a natural
desire to enter into some kind of regional agreement, as has been
the experience with NAFTA and the European Union.
The various intra- and extra-regional cooperation schemes are
not mutually exclusive, but complement and reinforce each other.
While intra-regional cooperation provides synergy in growth and
development, extra-regional cooperation serves to strengthen the
multilateral process.
Vijayakumari Kanapathy is Senior Analyst with the Institute of
Strategic and International Studies in Malaysia.