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"Political and Economic Regionalism in Asia: A Pragmatic Approach"

Speech By
Haruhiko Kuroda
President
Asian Development Bank

At the Real Instituto Elcano

29 January 2008
Madrid, Spain

I.  Introduction

Distinguished guests, ladies and gentlemen: Good morning, and thank you very much for joining me today to discuss economic and political regionalism in Asia. This has certainly become a hot topic in recent years and, in my view, its progress is and should be of great interest to the world. After all, a strong, well integrated Asian region will have much to contribute to global economic growth, prosperity and stability. I would therefore like to express my sincere appreciation to Real Instituto Elcano for providing an opportunity to talk about this important issue.

I am delighted to be here in Madrid on my first official visit to Spain as President of the Asian Development Bank. Let me express, on behalf of all of us at ADB, our gratitude for Spain's ongoing support of our vision of an Asia and Pacific region free from poverty. Asia's progress in this respect has astonished most observers, and the people of Spain can be proud of the role their country has played in improving the standard of living for hundreds of millions of the region's poor. I am very much looking forward to ADB's 41st Annual Meeting in Madrid in May, and I am pleased that we will have the opportunity to showcase some of the region's success stories.

I hope we can also convey during this time the urgency of redoubling our support to put Asia's growth and poverty reduction efforts on a more sustainable and equitable footing. Despite its overall success, about 600 million of the region's people still live on less than a dollar a day. Economic and social disparities are growing. And the emerging new development challenges, such as huge infrastructure gaps and environmental degradation, are daunting. Regional cooperation and economic integration, while not a panacea, will support continued rapid growth and help the region meet these challenges.

II.  Economic Aspects of Asian Regionalism

If we look at the history of Asian regionalism, it is clear that it has taken a significantly different course from that of the European Union. As Asia has embraced globalization, intraregional trade has expanded rapidly. Its outward-looking approach has also brought about a surge in productive investment and, increasingly, cross-border investment within the region and across its subregions. More recently, and particularly in the decade since the 1997/98 Asian financial crisis, governments have undertaken widespread institutional and regulatory reforms. And increased private sector integration has led to more efficient production networks, serving rising demand both within Asia and in the large export markets of North America and Europe.

These trends have resulted in robust economic growth within the region, particularly in East Asia and India. And, this growth has been generally accompanied by trade surpluses, other capital inflows, and reserve accumulation. Another result has been an upswing in the momentum toward regionalism. While the development of the European Union provides many lessons for Asian economic integration, the Asian model that is developing reflects the region's diversity, as well as its evolving socio-economic status and political conditions. Thus there are several key differences between Asia and Europe in the scope, speed, sequencing, and style of economic cooperation, in both economic and political terms.

A feasible, workable approach for Asia is evolving-one that promotes a market-friendly, multi-track, and multi-speed integration and allows for a healthy dose of pragmatism among a collegial group, or groups, of economies. While pragmatic national economic institutions and policies continue to play a key role in navigating economic success, regional-level initiatives are increasingly complementing these national level polices. For example, Asia's governments-most notably in East Asia-have embraced economic cooperation through various informal dialogues and formal ministerial processes. These include the 40 year old Association of Southeast Asian Nations (ASEAN),¹ the post-crisis ASEAN+3² framework, and the relatively new East Asian Summit process.³ The approach is step-by-step and bottom-up, rather than a more formal and comprehensive process based on a pan-Asian "vision" or grand plan for integration.

We have seen much activity at the subregional level-a logical starting point, given the region's diversity and wide gaps in the level of economic development. The concept is actually not very different from the principle of subsidiarity followed in Europe. Each subregion will inevitably have different needs; thus the scope and speed for regional cooperation varies, with some working in only a limited number of areas, while others pursue a more comprehensive and ambitious agenda. As subregional cooperation develops, "bridges" naturally form across subregional boundaries, leading eventually to wider and more comprehensive cooperation and integration.

A very successful example we often highlight is the Greater Mekong Subregion of Cambodia, Lao PDR, Thailand, Viet Nam, and Yunnan province in southern China, where ADB has been actively involved for the past 15 years. The subregion has made significant progress in cross-border infrastructure development. This in turn has brought increased trade and investment, the need for greater financial integration to ensure effective capital flows, and cooperation in the provision of regional public goods-such as the work done in environmental protection, or in preventing the spread of diseases like AIDS, SARS, or avian flu.

The Greater Mekong Subregion is an integral part of ASEAN. And ASEAN, as you may know, is moving toward economic community by 2015. Its new Charter-signed at the 13th ASEAN Summit last November-shifts its institutional framework from consensus to one that is more rules-based. Yet it is also significantly more pragmatic, allowing for differences in national economic development and national priorities, particularly for its newer, less developed members.

Of the four major regions-East Asia, South Asia, Central Asia, and the Pacific-East Asia is the most integrated economically. But the other regions, too, have been making progress. The South Asian Association for Regional Cooperation is focusing mainly on cooperation in agriculture, rural development and health. The Central Asia Regional Cooperation Program, created in 1997, is promoting shared infrastructure projects and improving the policy environment for cooperation in transport, energy, and trade. The Pacific Islands Forum has developed a Pacific Plan, updated in late 2006, that brings these small island states together to work in areas ranging from fisheries to air transportation safety.

This approach of cooperating in limited areas first, and then gradually deepening and widening the scope of cooperation, has several advantages. First, it allows any group of countries, economies, subregions, or territories to integrate according to their particular levels of development and the specific opportunities that regionalism offers them. Second, as such partnerships strengthen, it becomes more likely that smaller units will merge into larger ones, leading to wider and deeper partnerships across an ever-growing swathe of Asia. Third, and extremely important, is that this approach has the potential to ensure that Asia's economic integration remains market-friendly, as its integrating framework remains responsive to private sector needs. After all, it is private business networking across Asia that has given impetus to government cooperation in areas of trade, investment, finance, and even to a certain extent, on monetary and exchange rate issues.

III.  Political Aspects of Asian Regionalism

I am sure you can envision the political challenges of integrating a region so politically, economically, socially and culturally diverse. But economic interests have affected political considerations in Asia-in as much as political will can determine economic outcomes. The two have been mutually interactive. So long as the economic benefits from regional integration are substantial, political compromises can eventually be worked out. And, as I have said on previous occasions, if we look at the younger generations who are less bound by old nationalistic sentiment, we can be more optimistic that the political hurdles to economic integration can be overcome.

Asia has thus far been creative in fostering regional economic integration with minimum political compromises across countries. For example, the plethora of regional organizations and forums playing a role in regional cooperation have yet to become policy-making institutions. ASEAN is probably the furthest along, yet still relies on intergovernmental relations as the backbone of political cooperation.

This dependence on intergovernmental relations rather than any supranational institution, as was created in Europe, emanates from-and nicely accommodates-Asia's diversity. It allows countries to retain full political independence and control over internal affairs, yet naturally generates the eventual "sense of community," so crucial to building the foundation for mutual trust and confidence-the prerequisite for lasting peace and stability. At the subregional level, project or program-based arrangements can effectively reconcile long-term benefits with short-term socio-economic costs. Such arrangements can secure interests, encourage ownership, and generate tangible economic and social benefits, thus creating the momentum for further cooperation. This approach is particularly relevant in subregions where mutual trust and confidence among participating countries are not in place at the outset.

IV.  Conclusion

In closing, we can expect that the future of economic cooperation and integration in Asia and the Pacific will continue to be pragmatic and in step with emerging opportunities. The region continues to learn a great deal from Europe's experience. But given its diversity, size, and varying stages of economic development, the path toward regionalism in Asia will naturally build upon developing synergies.

As ADB reviews and adjusts its long-term strategy to help the region meet new challenges, support for regional cooperation and integration will, I believe, take on increasing importance. It is in the interest of all of us, whether located in Asia or elsewhere, that Asia's regionalism process remain market-friendly and flexible to accommodate the needs and capabilities of each subregion. Ultimately, a stronger, more integrated Asia will contribute proportionately to our worlds' increasingly globalized economy.

Thank you.