Regionalism, Asian style

Asia's regionalism is most certainly work-in-progress, but step-by-step it is progressing.

Despite its current problems, the EU is often considered to be the gold standard for countries working together for peace and prosperity. But there are many types of regionalisms in the world. North America has NAFTA, South America has Mercosur, Australia and New Zealand have Closer Economic Relations, and there are very many more examples.

What is unique about Asian regionalism is that it has been substantially market-driven. Following the 1985 Plaza Agreement to revalue the yen, many Japanese companies began offshoring labor-intensive manufacturing activities to lower cost destinations like the ASEAN countries of Southeast Asia and China.

Hong Kong, Korea, Singapore and Taiwan followed suite in offshoring. The region's value chains for electronics, automobiles, clothing and footwear, and other products were thus gradually established. The classic example is the i-Phone which was designed in California, and whose components are manufactured in Japan, Korea and Germany, and which is assembled in China by the Taiwanese company, Foxconn.

In the first phase, the final products of these value chains were primarily sold to US, European and Japanese markets. However, since the 2008 Lehman shock, there has been an acceleration of regional integration, with China becoming a more active trading and investment partner of all Asian countries. And with the rising purchasing power of Asia’s middle class, Asia’s value chains are now increasingly servicing Asian consumers. Today, some 40% between of East Asian trade takes place within the region, compared with 30% two decades ago.

Asia's middle class is also driving international tourism in the region. China has rapidly taken the lead in global tourism expenditure, spending $129 billion in 2013, a tenfold increase from 2000. It spends 50% on tourism more than the US. And China, Macao, Thailand and Hong Kong now figure in the world’s top ten for international tourism earnings.

There is also a growing number of Asian youth studying in other Asian countries. China has become the third most popular destination for higher education after the US and UK, hosting 8 percent of the world’s 4.3 million international students, more than four times higher than just a decade ago, with the leading sources being Korea, US, Japan, Thailand, Vietnam, Russia and India.

This market-led regionalism has created the basis for shared prosperity in the region, and improved cross-cultural understanding through the connections fostered.

Governments have arguably followed, rather than led, this process. Building on the ASEAN Free Trade Agreement, free trade agreements (FTAs) have been concluded between ASEAN and China, Japan, Korea, India, Australia and New Zealand. An initiative dubbed the Comprehensive Economic Partnership for East Asia is now working to consolidate these agreements, while deepening trade liberalization.

Another trade liberalization initiative, the Trans-Pacific Partnership (TPP), led by the US, is also being negotiated between Australia, Brunei Darussalam, Canada,Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. And discussions of a possible FTA between China, Japan and Korea have been underway for some time.

Perhaps ironically, the strongest inter-governmental project for regionalism is not among the region's biggest economies, but in ASEAN which is working towards a full fledged community, comprising Political-Security, Economic and Socio-Cultural Communities.

ASEAN is also the fulcrum for several other regional initiatives. The East Asia Summit is a regional leaders' forum for strategic dialogue and cooperation on key challenges facing the East Asian region. The ASEAN Regional Forum is a key forum for security dialogue in Asia. The 1997 Asian financial crisis gave birth to a fledgling “Asian monetary fund”, known as the Chiang Mai Initiative, which is a multilateral currency swap arrangement among the ten ASEAN members, and China, Hong Kong, Japan, and Korea. It is supported by the ASEAN+3 Macroeconomic Research Office (AMRO).

Asia is undoubtedly more diverse than Europe -- in terms of level of development (from rich Singapore to dirt-poor Laos), politics (from democracy to dictatorship and everything between), economics (free markets to state capitalism and more), and religions (Buddhism, Hinduism, Islam, Christianity, Shintoism and more). In fact, diversity is the very definition of Asia.

But this diversity has not stopped Asian countries from working together for prosperity and peace. And over time, market-led regionalism has progressively become more institutionalized.

From a European perspective, Asian regionalism may seem very slow, cautious, and timid. But Asia has had a lot to digest in the post-war period -- Chinese civil war, Korean war, Vietnamese war, decolonization, building new states, Cold War, financial crises, globalization, the occasional fickleness of its Western partners, and changing great power relations. One profound complication is that Asian countries are arguably part of two regions, Asia and the Asia-Pacific, and many regional organizations, notably APEC, include countries cover both the western and eastern Pacific rims.

But the evidence to date suggests that Asia's experience in regionalism has been very successful. Almost seven decades ago, at the end of World War 2 and in the midst of the Cold War, no-one could have imagined Asian countries working together as they are doing today.

Asia's regionalism is most certainly work-in-progress, but step-by-step it is progressing.