Towards an « Asian Community » ?, by BRUNO JETIN, Research Fellow, Institute for Research on Development (IRD-DIAL and Centre d’Économie de Paris Nord)

 Since a decade, Asia is experiencing a new regionalism. The rising integration of East and South Asian countries have laid its foundation. The 1997-98 economic and financial crisis was its catalyst. This new regionalism is reflected in the presence of new institutions. The East Asian countries, major victims of the crisis have created an informal forum ASEAN+3 around ASEAN, (ASEAN plus Japan, China and South Korea) which mainly participates in the domain of monetary and financial cooperation. The South Asian countries, especially India, not having been affected by the crisis, focused their efforts on commercial and productive integration with East Asia. These two incidents interact. To counterbalance China’s very big influence in East Asia, Japan and some other South-East Asian countries promote economic integration of India and its institutional integration. In December 2005, these countries have supported the creation of a new forum, the « East Asia Summit» which, as its name does not indicate, brings together « l’ASEAN+3 », India, Australia and New Zealand (the next meeting will take place in December 2008). That is why some prefer to call it ASEAN+6 to extend the geographical scope and stress on the intermediary role played by ASEAN. Out of the two institutions « l’ASEAN+3 » is the one that took the most number of concrete measures, with the East Asian Summit playing more the role of a sort of Asian « G7 ». But the very fact of bringing all the major Asian countries together in the absence of the United States is in itself a political event. The most ardent supporters of Asian regionalism see in it the embryonic « Asian Community », capable of reproducing the «European community» experience, without copying it for all that. This objective is obviously remote and could be thought of as totally utopist because the political, ethnic, cultural and religious heterogeneousness is so diverse in Asia. The unresolved conflicts inherited from decolonization and cold wars are still frequent in the south and in the east, indeed between the two parts of Asia. And however there is no shortage of arguments in favor of such a project and sustains a major debate in Asia, even if it remains confined to intellectual and political activity.

The basis of integration is first of all economic. Asia has three big countries, Japan, China and India, which have made international business their strategy for growth. China converting to capitalism and becoming member of the WTO has significantly changed not only the world economy but also the Asian economy. China has become the first client of Japan, South Korea, and ASEAN. It imports raw materials and components manufactured elsewhere from Asia, then exports the finished products to the West and also to Asia. China thus creates a new regional division of work that is superimposed to those created by Japan, Korea and Taiwan at their time. India fitted into the world economy much later and its economic take-off is more recent and not so fast. But it has learnt its lesson from the economic crisis of 1991 and the current failure of South Asia integration. As part of its policy of « looking towards the east», steadfastly pursued no matter what government is in power, India multiplies initiatives to integrate into East Asian economy and make the most of its rapid growth. Consequently, ASEAN has become the first business partner of India and China the second before European Union and United States. On the whole, business inside the region conducted by East Asia and India has moved up from around 20% after World War II to one third during the 1980s to reach more than 50% today. This rise in direct investment in Asia is made to the tune of 72% by Asian countries. The main thing corresponds to production chain focused on China. But there are new ties being established between South East Asia and India and between India and China. Thus, Japanese firms set up in Thailand now organize their production with subsidiaries set up in India. The Indian firms, engaged in a wave of acquiring foreign companies, buy out companies established in China. Korean companies invest massively in India to later export towards ASEAN. These new networks deepen the productive integration of Asia and increase economic interdependence. This productive integration depends on a frenzy of business agreements that pits China, Japan, India and South Korea against ASEAN in itself or some of its members. In December 2007, not less than 44 free trade agreements were finalized, 49 are being negotiated and 41 new proposals are under consideration. This entanglement of bilateral agreements sets the fear of a « noodles bowl» effect that creates confusion or even contradiction among signed agreements. The solution would be guaranteed by creating a pan-Asian free trade zone from the East to the South. We are far from it because the bargaining among Asian countries is as laborious as it is in the WTO, but without a multilateral regulatory institution coming to organize the debates.

In the domain of monetary and financial cooperation progress was significant thanks to the action of « ASEAN+3 ». Though informal, this institution, born out of a reaction to the 1997-98 crisis, was capable of taking concrete measures in the course of eleven years of existence thanks to an in-depth work led by the Financial Ministers and several special work groups.

First of all, a series of bilateral agreements of monetary mutual aid known as «  Chiang Mai’s initiative » (CMI) were entered into in 2000. In the event of an exchange crisis, a country could obtain loans and currencies from other member countries. The mechanism has been subjected to successive changes according to ASEAN summits or Asian Development Bank (ADB) which also led to China, Japan and South Korea coming together. In May 2008, during the annual ADB meeting, the Finance Ministers of ASEAN+3 decided to « multilateralize» the agreement for a sum of at least 80 billion dollars. It is an important step towards the possible creation of an « Asian Monetary Fund ». However, an obstacle persists: IMF’s permission is required for releasing large funds. This can seem surprising but it is in fact a compromise with the United States whose influence is decisive in the IMF and which always rebels against too big an Asian autonomy. This is also explained by the fact that since the Asian monetary fund is not yet created, there isn’t any regional institution capable of negotiating terms for borrowing with a country. But the decision of strengthening the monitoring mechanism of current economies within « ASEAN+3 » framework and to integrate it into the Chiang Mai initiative shows the desire of wanting to free oneself from IMF supervision.

The second important measure adopted by « ASEAN+3 » concerns the development of financial markets. The ASEAN+3 countries in cooperation with ADB and the Executives' Meeting of East Asia-Pacific Central Banks have worked for creating Asian bond markets in local currencies. There are numerous objectives: Diversify the sources of financing the economy and reduce an excessive dependence on banks that were being held responsible for the crisis. Reduce dollar debt and promote investment of Asian savings in local investments without going through American and European financial systems. These initiatives have enabled the growth of bond markets and the financial integration shown by the convergence of Asian interest rates. These advancements make the creation of a common or indeed unique Asian currency even more necessary just like the Ecu and the Euro afterwards. Several Asian economists have strived to show that it was desirable and possible on the economic front. The « Asian Currency Unit» is already calculated by the ADB and could be used as a useful instrument if the governments desire it ⁽[1]⁾. Some of the works show that the importance of creating a common currency also stretches up to South Asia.

The growing interdependence between South and East Asia combines with strategic interests. All the countries of the region fear China’s military expenses. Officially, China committed not to have recourse to force towards its neighbors by signing a friendly treaty with ASEAN with which it commits to settle many border disputes through diplomatic channels. This « diplomatic smile» has also led China to look for a compromise with India to determine common borders and put pressure on North Korea on nuclear issues. But behind the scenes a sprint between China and India is well underway to control the Indian Ocean. A large part of supplies in petrol and raw materials from India, China, Japan and ASEAN transit through the Bay of Bengal and the Strait of Malacca. China multiplies investments in Burma to open roads and construct ports in deep waters to set up naval bases in them. It is doing the same in Pakistan and Sri Lanka. Officially, it is a question of provide sea access to its provinces in the South-West and fight against piracy. In response, India strengthens its military fleet in the Indian Ocean and in the Sea of China of the South where it negotiates harbor facilities with Vietnam. These tensions rebound in a complex way but they have stimulated economic integration for the time being. An initial consequence is to multiply infrastructure expenses in Burma and in countries surrounded by Mekong, blown up with dynamite in places, to make it navigable. China has supported building of rail roads and connections along with a major North-South road across Burma and Laos to make business easier with Thailand and up to Singapore. India and Japan favor the East-West major roads which would enable India to open up its eastern border area of Burma and have access to Thailand, Laos and Vietnam. These enormous expenditure for infrastructure are financed either bilaterally, or by the Asian Development Bank where Japan exercises a great influence. Paradoxically, the second consequence is to strengthen the institutional construction of the Asian region. In 1997 India signed an agreement for regional cooperation with the Bay of Bengal countries, two of which were Burma and Thailand (BIMSTEC agreement extended to Bhutan and Nepal in 2004) and the Ganges-Mekong agreement on 10 November 2000 with the riparian countries of Mekong (except China) in response to the agreement signed in April of the same year by China with Burma, Laos and Thailand.

Several « sub-regional» agreements sometimes go beyond the sole domain of economy and also cover scientific research, education and culture. The State of Bihar in India wants to revitalize Nalanda university of historical tradition with the support of countries like Japan to promote scientific and cultural exchanges with the rest of Asia. The Asian tourism is also another way of establishing direct contacts: Two million Indian tourists go to ASEAN countries;  60% of tourists visiting the Angkor site are now Asian of which 2/3 come from North-East Asia. Medical tourism is also fast-expanding. Many Japanese companies for example have their employees’ medical check-up done in Thai hospitals. But most of the time economic concerns prevail over human considerations. Tourism is above all considered as an industry, geographical sites are excessively being treated as commodities, and medical tourism has the essential objective of reducing costs while the destitute populations remain excluded from getting medical care. As for the « ASEAN charter» supposed to protect individual and social rights of immigrant workers in Asia, many commentators stress that negotiations trying to reach a consensus have emptied its contents for a large part. Will social progress be abandoned on the side of the path to Asian integration?

BRUNO JETIN

Researcher,

Institute for Research on Development (IRD, France)

Centre  for Education and Labour Studies,

Faculty of Education,Chiang Mai University

Chiang Mai 50202 Thailand

email: bjetin@yahoo.fr

Tel: +66 (0) 5322 2722

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