Regional Cooperation in South Asia and Southeast Asia

4. Patterns of Economic Regionalism

4 Patterns of Economic Regionalism T.C.A. Srinivasa-Raghavan Introduction — Why Regional Trade Agreements (RTAs) It is a seeming paradox that along with the accelerated trend towards globalization over the last two decades, there has also been a new wave of regionalism. In the decade since 1996 alone, when the WTO agreement was signed, almost a hundred regional agreements have been negotiated. Several explanations have been offered for this trend. None of them is complete in itself but, together, they form a fairly convincing body of opinion about the usefulness of regionalism. Simply put, if so many countries are embracing it, there must be something to regionalism, whatever its critics may say. We have already discussed the political, institutional and security aspects of regionalism. Here we discuss its economic aspect. We also discuss which drives which: political and security aspects the economic or the other way around. Opinion is divided on this and it is hard to arrive at a firm judgement. But there is one thing that can be said with certainty: regionalism is here to stay as much as globalization is. 04 Patterns p205-278.indd 205 4/27/07 3:15:14 PM 206 Regional Cooperation in South Asia and Southeast Asia It might even be argued that regionalism is on the increase because of increasing globalization. It is, if you will, a form of defence against globalization. In that sense, the only issue, as in the case of globalization, is of managing it. We should note, though, that while in the case of globalization, managing has connotation of containing or slowing down, in the case of regionalism, it is the opposite. This is inherent in the defensive use of regionalism. To the extent that the perceived threat from globalization is mainly economic, preferential trade arrangements (PTAs) are the pillars on which regionalism rests. The essence of these, as the name suggests, is to treat some countries on a preferential basis so that they can help each other in the face of the “threat” from global capital. Multilateralism or globalism, on the other hand, often ignoring politics, takes a dim view of such preferences. It believes in the equal treatment for all countries. In some cases, the defensive aspect of regionalism has almost reached maturity. In the European Union (EU), the original trade agreements have eventually evolved to an economic and monetary union. The EU today is the most important counter to U.S. economic power, especially where an alternative medium of exchange (or monetary unit, namely, the Euro) is concerned. If the dollar is what gold used to be in the old days, the most preferred store of value, the Euro has become the counterpart of silver. This is entirely the consequence of successful regionalism. In most other regions, however, progress has been halting and at a varied pace. Indeed, some would argue that it took even Europe, which could be said to have a greater 04 Patterns p205-278.indd 206 4/27/07 3:15:14 PM Patterns of Economic Regionalism 207 consensus on the idea of forming an economic bloc, nearly half a century to get there. But surely the more interesting part is the fact that eventually it did. It has not yet reaped all the economic benefits of a 300-million strong market, largely on account of the rigid labour markets in Germany and France (though Germany may start reforming now with a new chancellor). The need for scale in production characterized by increasing capital intensity leaves no other option for small national markets. They have to join up and hang together if they do not wish to hang separately. The Association of Southeast Asia Nations (ASEAN), too, is moving rapidly towards becoming a giant economic bloc, and the eventual objective of forming an Asian Economic Community (AEC) seems closer now. When it comes into existence by around 2015, ASEAN will become a single market and production base and a key segment in what is called the global supply chain. This does not, however, mean that ASEAN is working either towards a common currency or free movement of people. That sort of economic union is still some distance away. The most important step in this direction was taken with the resetting of the deadline for integration, which is now five years ahead of the previous schedule. There were two important reasons for this. ASEAN believes that by...