1July 2008

2For a decade, Asia has been experiencing a new type of regionalism. The increasing integration of countries from East and South Asia has laid down the foundations for this, whilst the economic and financial crisis in 1997 and 1998 was the catalyst. This new type of regionalism can be seen through the presence of the new institutions. The East Asian countries, which are major victims of the financial crisis, have created an informal forum, “ASEAN+3”, around ASEAN (ASEAN in addition to Japan, China and South Korea), which mainly focuses on the sector of monetary and financial cooperation. The South Asian countries, particularly India, which were not heavily affected by the crisis, focused their efforts on commercial and productive integration with East Asia. These two incidents can be seen interacting with each other. To counterbalance China’s large influence in East Asia, Japan and other South-East Asian countries are encouraging the economic and institutional integration of India. In December 2005, these countries supported the creation of a new forum, the “East Asia Summit”, which, despite its name, brings together “ASEAN+3”, India, Australia and New Zealand. The next meeting will take place in December 2008. This is the reason why some prefer to call it, ASEAN+6, to extend the geographical scope and highlight the intermediary role played by ASEAN. Out of the two institutions, “ASEAN+3” is the one, which has taken the largest number of concrete measures, with the East Asian Summit playing more of an Asian “G7” role. The simple fact that all the major Asian countries have reunited together in the absence of the United States, is, in itself, a political event. The most ardent supporters of Asian regionalism view this “Asian Community” as an embryo capable of reproducing the “European community” experience, without copying it. This objective is obviously far from being achieved and could be thought of as totally utopian, as the political, ethnic, cultural and religious differences across Asia are so diverse. Unresolved conflicts from decolonisation and the Cold War remain in the South and the East, certainly between the two parts of Asia. Nevertheless, there is no shortage of arguments in favour of such a project and it continues to be a majorly debated topic in Asia, even if it is confined to the intellectual and political spheres.

Economic reasons

3First of all, there is an economic argument behind the integration. Asia has three big countries: Japan, China and India, which have made international business their strategy for growth. The conversion of China to capitalism and its membership of the WTO have significantly changed not only the global economy, but also the Asian economy. China has become the most important client for Japan, South Korea and ASEAN. It imports raw materials and components manufactured elsewhere in Asia, before exporting the finished products to the West and other parts of Asia. China has therefore created a new regional divide for work that has superseded that of Japan, Korea and Taiwan. India slotted itself into the world economy much later, with its economic take-off being more recent and less rapid. However, it has learnt its lesson from the economic crisis in 1991 and from the current failure of South Asian countries to integrate. Its policy of “looking towards the East” has remained in place regardless of the government in power, and through this, India has been able to increase its initiatives to integrate into the East Asian economy and to make the most of its rapid growth. Consequently, ASEAN has become India’s first business partner, with China as its second, ahead of the European Union and the United States. On the whole, business within the region shaped by East Asia and India has increased from approximately 20% after World War II to 33.3% during the 1980s, to more than 50% today. Furthermore, the rise in direct investment in Asia by Asian countries is approximately 72%. The important thing is that the production chain is centred around China. New ties, however, are also being established between South-East Asia and India, and also between India and China. Thus, Japanese firms set up in Thailand, now organise their production of goods with subsidiaries in India, whilst Indian firms caught up in a wave of acquiring foreign companies, are buying companies established in China. Korean companies are massively investing in India, to then export goods to ASEAN. These new networks add to the productive integration of Asia and increase economic interdependence. This productive integration depends on a frenzy of business agreements that puts China, Japan, India and South Korea in competition with ASEAN or some of the member countries. In December 2007, no less than 44 free trade agreements were finalised, with 49 undergoing negotiations and 41 new proposals under consideration. This entanglement of bilateral agreements runs the risk of adopting a “noodle bowl effect” where there may be confusion or even contradiction amongst signed agreements. The solution would be to create a pan-Asian zone of free trade, from the East to the South. We are far from achieving this because the bartering amongst Asian countries is as arduous as it is in the WTO, except in this case, where it lacks a multilateral regulatory institution to organise the debates. With regard to monetary and financial cooperation, there has been significant progress due to ASEAN+ 3’s actions. This institution, although originating from a reaction to the 1997-98 crisis, has been implementing concrete measures throughout the eleven years that it has been running, thanks to in-depth studies led by finance ministries and numerous specialist groups.

4First of all, a series of bilateral agreements concerning monetary mutual aid known as the “Chiang Mai Initiative” (CMI) was adopted 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 over the course of ASEAN or the Asian Development Bank (ADB) summits, which gave China, Japan and South Korea the opportunity to come together and reunite. In May 2008 during the annual ADB meeting, the ASEAN+ 3 finance ministries decided to “multilateralise” the agreement for a sum of at least 80 billion dollars. It is an important step towards the possibility of creating an “Asian Monetary Fund”. An obstacle persists: the IMF’s permission is required for releasing large funds. This may seem surprising, but it is a compromise with the United States, whose influence is decisive in the IMF and which has always been against an Asia whose independence is too significant. This is also explained by the fact that, since the Asian monetary fund has not yet been created, no regional institution currently exists capable of negotiating terms for borrowing with a country. The decision to strengthen the surveillance of current economies within the “ASEAN+ 3” framework and to integrate it into the Chiang Mai Initiative, show the desire to break free from IMF’s supervision.

5The second important measure adopted by “ASEAN+3” concerns the development of financial markets. The ASEAN+3 countries, in cooperation with the ADB and the conference of central banks from East Asia and the Pacific, have worked towards the creation of Asian bond markets in local currencies. There are numerous objectives. These include diversifying the sources of financing the economy and reducing excessive dependence on banks, which were being held responsible for the crisis, reducing the debt in dollars and to promote the placing of Asian savings into local investments, without having to go through the American and European financial systems. These initiatives have enabled the growth of bond markets in addition to financial integration as shown by the convergence of Asian interest rates. These advances make the creation of a common or unique Asian currency even more necessary similar to the écu and the euro after it. Several Asian economists have strived to show that it is desirable and possible economically speaking. The “Asian Currency Unit” has already been calculated by the ADB and could be used as a useful tool should the governments decide to use it. Certain studies show that the importance of creating a common currency also extends to South Asia.

Strategic reasons

6The growing interdependence between South and East Asia also yields strategic interests. All of the countries in the region fear China’s military expenses. Officially, China has committed to not resorting to force on its neighbours by signing a treaty of friendship with ASEAN, in which it commits to settle border disputes through diplomatic channels. This “diplomatic smile” has also led China to look for a compromise with India in determining common borders and to apply pressure on North Korea on nuclear issues. Behind the scenes, however, a sprint between China and India is well underway to see who will control the Indian Ocean. A large portion of the supplies of petrol and raw materials from India, China, Japan and ASEAN, pass through the Bay of Bengal and the Strait of Malacca. China has multiplied its investments in Burma to open roads and to construct ports in deep waters in order to set up naval bases in them. It is also doing the same in Pakistan and Sri Lanka. Officially speaking, it is a question of providing access to the sea for its provinces in the southwest, and to fight against piracy. In response, India has strengthened its military fleet in the Indian Ocean and in the South China Sea where it is negotiating harbour facilities with Vietnam. These tensions have rebounded in a complex way, but they have stimulated economic integration for the time being. The initial consequences are to multiply infrastructure expenses in Burma and in countries surrounded by the Mekong (blown up with dynamite in places to make it accessible). China has supported the construction of railroads along a north-south route, crossing Burma and Laos along the way, to facilitate business with Thailand and Singapore. India and Japan, on the other hand, favour the east-west routes, which enable India to open up its oriental border regions to Burma and have access to Thailand, Laos and Vietnam. The huge costs for infrastructure are financed either bilaterally, or by the Asian Development Bank, over which Japan exercises a great influence. Paradoxically, the second consequence will be to strengthen the institutional construction of the Asian region. In 1997, India signed an agreement for regional cooperation with the countries of the Bay of Bengal, two of which were Burma and Thailand (the BIMSTEC Agreement extended to Bhutan and Nepal in 2004). India also signed the Ganges-Mekong Agreement on 10^th November 2000, with the riparian countries of the Mekong (except for China) in response to the agreement signed in April 2000 by China with Burma, Laos and Thailand.

The human factor: is the main one forgotten?

7Several “sub-regional” agreements sometimes go beyond the only area of the economy and go on to cover scientific research, education and culture. The state of Bihar in India would like to revitalise the Nalanda University of Historical Tradition with the support of countries such as Japan to promote scientific and cultural exchange with the rest of Asia. Asian tourism is also another way of establishing direct contact, with two million Indian tourists going to ASEAN countries. 60% of tourists visiting Angkor are now Asian and two thirds of them come from North-East Asia. Medical tourism is also rapidly expanding. Many Japanese companies, for example, have their employees’ medical check-up carried out in Thai hospitals. Most of the time, however, economic concerns prevail over human interests. Tourism is, above all, considered as an industry, with archaeological sites being treated all too often as commodities and the essential objective of medical tourism is to reduce costs, even whilst destitute populations remain excluded from receiving medical care. As for the “ASEAN Charter”, which is supposed to protect individuals as well as the social rights of immigrant workers in Asia, many commentators stress that negotiations trying to reach a consensus are somewhat ineffective. Will social progress be abandoned on the road to Asian integration?