eu–asia: links and lessons

Introduction

EU–Asia: links and lessons

Erik Jones*, Michael G. Plummer

Johns Hopkins University SAIS-Bologna Center, Via Belmeloro, 11, Bologna 40126, Italy

Received 10 September 2003; received in revised form 1 October 2003; accepted 10 October 2003

1. Introduction

East Asia has been the primary example of a region in which economic integration has

proceeded through regionalization, rather than regionalism. That is, growing shares of

intra-regional trade and investment flows have been lead by market actors, rather than by

government initiatives in the form of preferential trading arrangements (PTA). Most

economist would recommend such a market-based approach as a more effective strategy,

ceteris paribus; increases in intra-regional interaction in the framework of a PTA derive

from trade and investment diversion, as well as trade and investment creation, which a

priori ambiguous effects on allocative efficiency. However, informal market integration

tends to be unambiguously welfare-enhancing, as economic-policy is non-discriminatory

Unilateral liberalization-coupled with active participation at the multilateral level, e.g.,

during the Uruguay Round trade talks—has been a hallmark of the Asian success story.

But times are changing. Since the Asian Crisis of 1997–1999, East Asian governments

have become quite active participants in the global regionalism zeitgeist, with many

proposals for PTAs between countries in the region (e.g., Japan–Korea, Singapore–Japan);

between countries and subregions in Asia (e.g., China–ASEAN); and with countries

outside East Asia (e.g., ASEAN–CER1, Singapore–US). Moreover, region-wide initiatives

have been developed under the auspices of the Asia–Pacific Economic Cooperation

(APEC) organization, in which member-states have already dedicated themselves to a

region of ‘‘open trade and investment’’ by 2010 (2020 for developing economies), and the

loosely formed Asia–Europe Meeting (ASEM), which is contemplating new forms of

cooperation between the EU and East Asian economies.

Journal of Asian Economics 14 (2004) 829–842

* Corresponding author. Tel.: þ39-051-291-7833; fax: þ39-051-228-505.

E-mail address: [email protected] (E. Jones).1 The Australia–New Zealand ‘‘Closer Economic Relations’’ (CER) agreement is one of the most

comprehensive free-trade areas in the world.

1049-0078/$ – see front matter # 2003 Elsevier Inc. All rights reserved.

doi:10.1016/j.asieco.2003.10.008

This trend clearly constitutes a new approach to international economic-policy in East

Asia. Previously, the only significant PTA in the region was the Association of Southeast

Asian Nations (ASEAN), created in 1967. This group embraced only superficial economic

initiatives until the early 1990s, when the ASEAN Free Trade Area (AFTA) was

negotiated. AFTA should be fully functioning by the end of 2003; however, the ASEAN

leaders have expressed a willingness to work toward far greater economic-policy ‘‘dee-

pening.’’ This has led to a number of agreements in the area of finance (e.g., the decision to

create an ‘‘Asian bond pool’’ at the Bank of International Settlements, the Chiang Mai

Initiative,2 and proposals to create integrated capital markets under the ‘‘Hanoi Plan of

Action’’) and, most recently (November 2002), an official investigation into the possibility

of creating an ASEAN Economic Community (AEC) by 2020.

In using the term ‘‘economic community,’’ the ASEAN leaders revealed an openness to

the idea of learning from the European integration process, which is widely regarded as a

success story (albeit the degree of success is somewhat controversial). This also

represents a sea-change in thinking; the EU, with its highly-formal approach to

integration and a penchant for supranational institutions and far-reaching regional

economic policies, has hitherto been in many ways the antithesis of (loose) Asian

cooperation. In this Special Issue, for which initial drafts were presented in Bologna at a

joint ICSEAD3—Johns Hopkins University workshop in May 2003, we consider many

key issues in the European integration context (past and present) and attempt to apply

them to East Asian realities today. Given that the evolution of the EU has been as much a

political process as it has been economic in nature, we place a strong emphasis on

political–economy considerations in formulating the policy lessons of EU integration for

East Asia.

The remainder of this introductory chapter is organized as follows. In Section 2, we give

a brief review of EU–Asia ‘‘links’’ and summarize associated chapters that are found in this

issue. Section 3 asks whether there are any direct lessons that the Asian countries can derive

from recent European experience. Section 4 concludes.

2. The EU and Asia in the global economy: a statistical overview

The East Asian status quo today is very different from the origins of integration in

Europe. First, the contemporary global marketplace is much more open. The GATT/WTO

rounds as well as unilateral liberalization have led to extensive reductions in trade barriers

and to huge increases in international capital flows (including foreign direct investment

(FDI)). In turn, this openness suggests that the costs of using regional integration as a form

of ‘‘fortress,’’ that is, to maximize trade diversion, are consequently much higher than they

were in the past, as separating the regional economy from the global production chain has

become too costly.

2 The Chaing Mai Initiative developed a framework for bilateral swap agreements between Japan and the

ASEAN member-states, as well as other Asian countries.3 ICSEAD: International Centre for Southeast Asian Development. The workshop was held at the Bologna

Centre of the Johns Hopkins University.

830 E. Jones, M.G. Plummer / Journal of Asian Economics 14 (2004) 829–842

Second, regionalism has grown by leaps and bounds—particularly recently; trade

groupings reported to the WTO come to well over 200, with a majority being established

after 1995. East Asia has been negatively affected by economic integration in its largest

markets (the United States, EU) by recent integration schemes4 and, hence, is apprehensive

regarding new initiatives, such as the enlargement of the EU to include Central and Eastern

Europe and the Free Trade Area of the Americas (FTAA) proposal. Thus, the recent

decisions to engage in horizontal and vertical integration stems both from the EU example

of success as well as a defensive reaction to integration elsewhere. It may also be an

example of ‘‘the flag following trade,’’ rather than ‘‘trade following the flag’’ (as in the case

of the EU).

The differences are not only evident in comparisons across time. They also show up in

comparisons across countries and regions. While the expansion of the EU to include the 10

Central and Eastern European countries beginning in 2004 will change things, to date all 15

EU countries are technically developed countries. East Asia, on the other hand, features

developed; ‘‘dynamic Asian economies’’; middle-income developing countries; and least-

developed countries. The Asian Development Bank in its Asian Development Outlook

2002 notes that the coefficient of variation (standard deviation divided by the mean) on

income levels within ASEAN was 1.61 in 2000, whereas the corresponding figure for the

EU was 0.6. Economic-integration initiatives are far more complicated and risky in such an

environment.5

The EU is also more integrated than East Asia. As can be seen from Table 1, intra-Asian

trade comes to slightly less than one-half of total trade (48%). This is far less than the two-

third share of intra-Western Europe trade, although somewhat higher than intra-NAFTA

trade (40%) and significantly higher than intra-Latin American trade (17%). As intra-

regional trade in Asia has evolved as part of a regionalization process and the EU has been

pushed by a series of policy-driven discriminatory initiatives (beginning with the European

Table 1

Intra- and inter-regional merchandise trade, 2001 (percentage of total trade)

Origin Destination

North

America

Latin

America

Western

Europe

C/E Europe,

CIS

Africa Middle

East

Asia World

North America 39.5 16.5 19.0 0.7 1.3 2.1 20.9 100.0

Latin America 60.8 17.0 12.1 0.9 1.2 1.2 6.3 100.0

Western Europe 10.3 2.3 67.5 5.9 2.5 2.6 7.8 100.0

C/E Europe, CIS 4.2 2.1 55.2 26.6 1.0 2.8 6.6 100.0

Africa 17.7 3.5 51.8 0.7 7.8 2.1 14.9 100.0

Middle East 16.5 1.3 16.5 0.8 3.8 7.6 47.3 100.0

Asia 25.1 2.7 16.8 1.1 1.6 3.0 48.2 100.0

World 21.9 5.6 40.6 4.2 2.1 2.7 21.7 100.0

Source: WTO, International Trade Statistics, www.wto.org. C/E: Central and Eastern.

4 For example, the Single Market Program had a significantly-negative impact on Asia exports and NAFTA

seems to have hurt certain export sectors (see Kreinin & Plummer, 2002).5 See, for example, ADB (2002) for a discussion of related issues.

E. Jones, M.G. Plummer / Journal of Asian Economics 14 (2004) 829–842 831

http://www.wto.org

Coal and Steel Community and the European Payments Union and continuing on to

the Treaty of Rome, the Single Market Program, and Economic and Monetary Union),

it is, perhaps, unfair to make a direct comparison of Western Europe and East Asia as

‘‘natural’’ economic blocs. Indeed, double-density measures, in which intra-regional trade

is normalized by shares in global trade, tend to be higher in the context of East Asia,

ranging in 2000 from 1.4 to 2.2 in the case of EU countries and 2.6–5.5 in the original

ASEAN countries.

Hence, at least at the level of intra-regional trade, the respective EU and the East Asian

situations are arguably similar in terms of statistical indicators. But this is not true at the

subregional context, where most economic-integration initiatives are taking place. Table 2

notes that intra-ASEAN trade came to only about one-forth of total regional trade, and

there is not an obvious trend in terms of changing shares: since 1990, intra-regional exports

have fluctuated between one-fifth and one-fourth of total trade, and intra-regional imports

have been slightly lower.6 This underscores the fact that ASEAN could never presume to

use an inward-looking regional approach in order to develop, as the EU did in the 1950s

and 1960s: the region is just too small and dependent on the rest of the world. A ‘‘Fortress

Table 2

Shares of intra-regional trade for EU, selected Asia–Pacific groupings (billions of dollars and share in total)

Value 2001 Share in total export/import

1990 1995 2001

EU (15)

Total exports 2291 100.0 100.00 100.00

Intra-exports 1417 64.9 64.01 61.85

Extra-exports 874 35.1 35.99 38.15

Total imports 2334 100.0 100.00 100.00

Intra-imports 1421 63.0 65.23 60.89

Extra-imports 913 37.0 34.77 39.11

APEC (21)

Total exports 2700 100.0 100.00 100.00

Intra-exports 1938 67.5 73.06 71.78

Extra-exports 762 32.5 26.94 28.22

Total imports a 2969 100.0 100.00 100.00

Intra-imports 2076 65.4 71.74 69.92

Extra-imports 893 34.6 28.26 30.08

ASEAN (10)

Total exports 385 100.0 100.00 100.00

Intra-exports 90 20.1 25.52 23.46

Extra-exports 295 79.9 74.48 76.54

Total imports 336 100.0 100.00 100.00

Intra-imports 77 16.2 18.89 22.77

Extra-imports 260 83.8 81.11 77.23

Source: WTO, International Trade Statistics, www.wto.org.

6 This discrepancy comes, inter alia, from much double-counting in intra-regional ASEAN trade, e.g., in the

area of petroleum-related trade.


http://www.wto.org

ASEAN’’ would be a disaster, a reality that the ASEAN leaders appreciate as they have

always stressed ‘‘open regionalism’’ in their initiatives.7

Regarding the ‘‘links’’ between the EU and East Asia, Table 1 shows that Western

Europe is Asia’s third most important trading partner, after Asia itself and North America.

While trade with the United States is almost 50% higher than trade with the EU, at 17% the

EU share in Asian trade is significant and constitutes a key market for Asia exports. In fact,

from the perspective of the structure of trade, Asian exports to the EU tend to be in the

region’s most dynamic areas, especially electrical machinery, electronics, and transport

equipment (SITC 7). Table 3 gives a breakdown of EU imports from individual Asian

countries. For all East Asian countries save Indonesia and Vietnam, SITC 7 is the largest

sector for exports to the EU at the one-digit level, and in most cases it constitutes greater

than half of all exports, even in resource-abundant countries such as Malaysia and the

Philippines. Moreover, in all cases save Singapore—where SITC 7 already constituted over

three-fourths of total exports to the EU—the share of SITC has grown significantly since

1995, in some cases spectacularly (e.g., in the Philippines from 39 to 76%). In sum, the EU

is a key market in terms of quantity and quality, even if it is not the largest.

The same can be said of FDI flows. Promoting FDI as a means of attracting (non-debt

creating) long-term capital flows, foreign exchange, access to foreign markets, and

technology transfer is a high priority for all Asia countries from the least to the most

developed, and in most cases is thought to have played a salient role in economic growth

performance.8 Regional economic integration accords such as AFTA can promote FDI

inflows through reductions in transactions costs (be they border or non-border in origin). In

doing so, they establish an attractive business environment within which multinationals can

profit from a vertical division of labor, as well as facilitate the emergence of multinationals

within the developing region itself. EU integration constitutes an excellent example of how

this process can work.

The EU continues to be an important supplier of FDI to East Asia. Table 4 presents data

on FDI outflows to ASEAN from major EU countries, the United States and Japan, as well

as FDI inflows reported by the ASEAN countries.9 In the early-mid 1990s, the United

States and Japan each exported more FDI to ASEAN than the combined EU-4, in some

years significantly more so. However, recent FDI data suggest an increasing European

presence in ASEAN; EU-4 FDI outflows to ASEAN exceeded both Japanese and US FDI

outflows to the region in 1999, and exceeded US FDI outflows in 2000 (Japanese data were

not yet available for 2000).

In terms of FDI stocks10, the major EU countries in 1999 had much smaller positions

compared to the United States and Japan. Among the EU countries, the United Kingdom

had the largest FDI stock in ASEAN ($6.3 billion), followed by Germany ($6 billion) and

France ($3.6 billion). This compares with US and Japanese positions of $46 and $21

7 ‘Open regionalism’ is a term developed in the context of APEC in which regional initiatives are all non-

discriminatory vis-a-vis third parties.8 Certain high-growth countries, especially Japan and South Korea, did not actively promote FDI during their

respective high-growth phases. However, today they have placed an emphasis on promoting FDI inflows.9 This discussion is drawn from Plummer (2002).

10 The data for this paragraph were taken from OECD, International Direct Investment Statistics 2001 (CD-

Rom, 1980–2000), with author’s adjustments to convert to US dollars in the case of the EU countries and Japan.


Table 3

EU imports from major developing Asian markets, 1995–1999

1995 1996 1997 1998 1999 1995 1996 1997 1998 1999

China Singapore

0 Food 0.03 0.03 0.02 0.02 0.02 0.01 0.01 0.01 0.01 0.01

1 Beverages/tobacco 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2 Crude material 0.03 0.03 0.03 0.03 0.02 0.01 0.01 0.01 0.01 0.00

3 Mineral fuels 0.01 0.01 0.01 0.01 0.01 0.00 0.00 0.00 0.00 0.00

4 Animals/vegetable oils 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

5 Chemicals 0.06 0.05 0.05 0.05 0.04 0.04 0.04 0.06 0.07 0.12

6 Manufactured goods 0.13 0.12 0.12 0.13 0.12 0.03 0.03 0.02 0.02 0.02

7 Machines/equipments 0.24 0.25 0.27 0.29 0.32 0.80 0.82 0.83 0.79 0.78

8 Miscellaneous manufactured 0.49 0.50 0.49 0.47 0.46 0.10 0.08 0.07 0.06 0.06

9 Common NES 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.04 0.01

Total US millions 34325.51 37995.28 42362.20 46858.71 52683.37 11120.74 11530.21 12665.32 13487.91 13118.12

Indonesia Hong Kong

0 Food 0.08 0.08 0.08 0.07 0.07 0.01 0.01 0.01 0.01 0.00


2 Crude material 0.10 0.12 0.11 0.10 0.09 0.01 0.00 0.00 0.01 0.00

3 Mineral fuels 0.04 0.04 0.03 0.03 0.02 0.00 0.00 0.00 0.00 0.00


5 Chemicals 0.02 0.02 0.02 0.03 0.02 0.01 0.01 0.01 0.01 0.01




9 Common NES 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.05 0.02


Malaysia South Korea

0 Food 0.03 0.03 0.02 0.02 0.02 0.01 0.01 0.01 0.01 0.01


2 Crude materials 0.08 0.07 0.07 0.05 0.05 0.01 0.01 0.01 0.01 0.01

3 Mineral fuels 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

83

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4 Animal/vegetable oils 0.04 0.04 0.04 0.06 0.05 0.00 0.00 0.00 0.00 0.00

5 Chemicals 0.02 0.02 0.02 0.02 0.02 0.06 0.05 0.06 0.06 0.04




9 Common NES 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.02 0.01


Philippines Taiwan

0 Food 0.06 0.05 0.04 0.03 0.03 0.00 0.00 0.00 0.01 0.00


2 Crude material 0.04 0.04 0.05 0.03 0.02 0.01 0.01 0.01 0.01 0.00

3 Mineral fuels 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


5 Chemicals 0.01 0.01 0.00 0.00 0.00 0.03 0.02 0.02 0.02 0.02




9 Common NES 0.05 0.05 0.03 0.03 0.01 0.00 0.00 0.00 0.00 0.00


Thailand India

0 Food 0.16 0.17 0.15 0.15 0.14 0.09 0.10 0.10 0.08 0.09


2 Crude material 0.05 0.05 0.04 0.03 0.03 0.04 0.04 0.05 0.05 0.05

3 Mineral fuels 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.00 0.00 0.00


5 Chemicals 0.01 0.01 0.01 0.02 0.02 0.07 0.07 0.08 0.08 0.08




9 Common NES 0.01 0.00 0.03 0.02 0.00 0.00 0.00 0.00 0.00 0.00


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Table 3 (Continued )

1995 1996 1997 1998 1999 1995 1996 1997 1998 1999

Vietnam Pakistan

0 Food 0.21 0.13 0.15 0.17 0.14 0.08 0.06 0.07 0.08 0.07


2 Crude material 0.02 0.01 0.01 0.01 0.01 0.04 0.05 0.04 0.04 0.03

3 Mineral fuels 0.02 0.01 0.01 0.01 0.01 0.00 0.00 0.00 0.00 0.00


5 Chemicals 0.01 0.01 0.01 0.01 0.00 0.00 0.00 0.00 0.00 0.00




9 Common NES 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


Source: Plummer, (2003). Structural change in a globalized Asia: Macro trends and US policy challenges. Journal of Asian Economics, 14, 243–281.

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billion, respectively. However, over the 1990–1999 period, EU FDI stocks grew fairly

impressively. In fact, in terms of US dollars, the growth in German outward FDI stock in

ASEAN was, at 302%, the fastest of all these countries. The US outward FDI stock grew by

293% and French FDI stocks by 109%, whereas the stock of the United Kingdom and Japan

actually fell by 15 and 24%, respectively.

In short, EU–Asian economic links are significant for both regions, and the EU

constitutes an important market for Asian exports and as a source of FDI. In this Special

Issue, we consider two aspects of these links, one dealing with trade and the other FDI. Our

first paper, ‘‘EU Enlargement and Its Impact of East Asia,’’ by Hiro Lee of ICSEAD and

Dominique van der Mensbrugghe of the World Bank, considers the economic effects of the

enlargement of the EU to include the 10 Central and Eastern European countries over the

next few years. Given similar factor endowments, government officials and economists

have been nervous that this enlargement might adversely affect their exports to the EU

given the inherent preferences of accession. Using a dynamic CGE model, they generate

three scenarios to evaluate the effects of the EU enlargement on East Asia. They find the

overall macroeconomic effects for East Asia are generally negative but small. At the

sectoral level there are some significant trade-diverting effects but really only in the labor-

intensive textiles and apparel sectors in China, Asian NIEs and ASEAN. In all other

sectors, output adjustments are marginal. They predict that, because the effects of EU

enlargement on sectoral output in East Asian countries are minor, industry lobbies will

Table 4

Direct foreign investment outflows to ASEAN (US$ millions)

1985 1990 1995 1996 1997 1998 1999 2000

(A) Outflows from selected country sources to ASEAN

France 68.2 177 251.4 441.3 280.7 1338.8 1660.8 158

Germany 18.7 93.7 1128.4 1059.2 �224.9 395.1 1729.8 1804.2

Italy – – 13 76 120.5 26.7 16.1 8.4

United Kingdom 263 975 398.4 1988.1 2515.7 �3297.8 3791.6 6065.7

United States �108 1979 3411 6657 4532 963 6075 4680

Japan 935 4082 4558 5888.8 7097.7 4404 4197.1 –

1989 1990 1995 1996 1997 1998 1999

(B) Inflows reported by ASEAN country

Cambodia – – 150.8 293.6 204.0 121.0 125.5

Indonesia 682.0 1093.0 4346.0 6194.0 4677.0 �356.0 �2745.0

Lao PDR 4.0 6.0 95.4 160.0 86.0 45.0 79.0

Malaysia 1667.9 2333.0 4178.2 5078.0 5136.5 2163.4 1552.9

Myanmar 7.8 161.0 277.2 310.4 387.2 314.5 216.3

Philippines 563.0 530.0 1478.0 1517.0 1222.0 2287.0 573.0

Singapore 2886.6 5574.7 7206.4 8984.1 8085.2 5492.9 6984.3

Thailand 1775.5 2444.0 2068.0 2335.9 3894.7 7315.0 6213.0

Vietnam 4.0 16.0 2349.0 2455.0 2745.0 1972.0 1609.0

ASEAN total 7590.8 12157.7 22148.9 27328.0 26437.6 19354.8 14608.0

Sources: (A) OECD, International Direct Investment Statistics Yearbook (2001), CD-Rom; author’s calculations

(B) Asian Development Bank, Key Economic Indicators, Table 33, www.adb.org. (C) Plummer, (2002). The EU

and ASEAN: Real links and lessons in financial integration. The World Economy, 25 (10), 1469–1500.


http://www.adb.org

likely restrain from protesting the enlargement, especially since dynamic restructuring may

create market penetration opportunities in areas in which East Asia has comparative

advantage.

In the second contribution, ‘‘Labor Productivity, Wage, Nationality, and Foreign

Ownership Shares in Thai Manufacturing 1996–2000,’’ Eric Ramstetter, also of ICSEAD,

focuses on micro questions related to the economic characteristics of multinational

corporations (MNCs) operating in Thailand in a comparative context using firm-level

data. As suggested above, economists tend to take for granted that MNCs should actually

have considerably higher labor productivity and pay higher wages. After an extensive

review of the theoretical and empirical literature, Professor Ramstetter addresses these

issues using an econometric approach under various assumptions he derives from the

literature. He is able to identify a tendency for MNCs from Europe, Japan, and the United

States to have higher labor productivity and wages than local firms, though the link is not

strong. In fact, the relationship between labor productivity/wages and foreign ownership

shares/nationality is generally weak in the manufacturing sector. His extensive treatment of

these issues includes an exhaustive review of the data and statistical problems associated

with trying to capture the productivity effects in particular, and in the behavior of Triad

(US, EU, and Japanese) firms in Asia.

3. Lessons for Asia from the EU?

Europe is an important trading partner for Asia, but does that make it an important

example? When we initiated this project we asked our contributors to underscore

applicable lessons for Asia from Europe. Instead they tended to explain why lessons

derived from European experience are inapplicable in an Asian context. This tendency is

most evident in the essay by Jim Angresano. Using an institutionalist approach, Angresano

explains how patterns of integration in Europe and Asia are sensitively dependent upon

contextual factors. Even controlling for difference in the structure of the world economy as

it has evolved over the past half century, it remains clear that the countries of Europe and of

Asia remain contextually specific, that the problems they face are in many senses unique,

and that the solutions which would fit within existing institutional frameworks are highly

idiosyncratic. By implication, any attempt to transfer a European model for integration to

Asia (or the reverse) would end in failure. Far from offering a set menu of economic

advantages, such institutional transplantation would only succeed in generating new and

unexpected problems. Hence both Asia and Europe are advised to continue along their own

developmental trajectories, using integration on an ad hoc or specifically tailored basis to

solve problems, as they actually exist in these different regions of the global economy.

Angresano’s argument may overstate the case for a range of important lessons from

Europe for Asia—an issue to which we will return in the next section. Nevertheless, his

argument is important for two reasons. First, by emphasizing the importance of historical

context, Angresano underscores a central motivation that many in Europe seem to have

forgotten with the passage of time. European integration was an economic instrument to

solve a political problem—common markets to end the threat of war. There were many

advocates of integration who emphasized the economic benefits, to be sure. However, the


political determination to end the threat of war made an important contribution to the

success of the project. Moreover, we could extend this argument to explain some of the

more idiosyncratic features of the European project, such as the common agricultural

policy (CAP) or even the single currency. In so doing, it becomes easier to understand why

major policies are undertaken despite the fact that their direct economic benefits remain

hotly disputed.

The second reason Angresano’s argument is important is that it highlights the relation-

ship between diversity and acceptance. It is not enough that European integration has had to

contend with an ever increasingly-diverse array of member states (and the even more

diverse arrays of problems which they brought with them). Increasingly, European

integration has had to gain some measure of popular acceptance among the member

states as well. Indeed, if anything, the challenge of legitimating integration for different

constituencies in different countries has proven to be even more complex than the

challenge of developing common institutions to the requirements of diverse member

states. Angresano suggests that this challenge of legitimation is best tackled piecemeal.

Institutions reflect underlying values; therefore, institutional differences between countries

reflect value differences as well. By implication, any attempt to transpose European forms

of integration into an Asian context is not only unlikely to work, it is also unlikely to garner

popular acceptance. To the extent that they exist, European ‘lessons’ for Asia should be

expected to prove both unworkable and unpopular.

Again Angresano’s position may overstate the case, at least when confronted with

specific examples. However, it provides a strong indictment of any easy assumption that

patterns of integration are value-neutral. Hence the difference between Europe’s ‘closed

regionalism’ and Asian ‘open regionalism’ is more than simply a function of changes in the

global economy and reflects perhaps an underlying cultural homogeneity in Europe that

does not exist elsewhere.

The paper by Craig Parsons and J. David Richardson approaches the question of

legitimation from a different tack. Rather than focusing on the value content of specific

institutions, they ask whether both Europe and Asia hold a similar regard for procedural

democracy and whether integration in both regions is sufficiently bolstered by democratic

procedures. Their prior is that so long as integration is democratic, it will also be legitimate.

In turn, this legitimacy is critical to the sustainability of market integration.

Parsons and Richardson focus their analysis on the experience of the US as well as the

EU. They argue that the way forward in Asia relies on the development of centralized

regulatory and judicial institutions capable of facilitating both market integration and

dispute resolution. These institutions are not ‘likely’ to be developed in Asia, but then again

there were important historical moments within which it was unlikely that such institutions

would be developed in Europe (or the United States) either. In this way, the European

Union does not offer a model because of its relative success at integration. Rather, the

European Union was successful at integration because it adopted a procedurally demo-

cratic model. This interpretation is reassuring insofar as it provides a window on the

challenge facing the European Union of today. Should the people of Europe lose faith in the

democratic character of European institutions, the result would be a loss of perceived

legitimacy for the process of integration as a whole (Jones, 2002). The lessons derived by

Parsons and Richardson are important for Europe as well as for Asia.


Parsons and Richardson provide a useful corrective for the excessively fragmented view

of contextual specificity provided by Angresano. However, they overstate the need for

centralization along either US or EU lines. Even if we accept the need for legitimation to

operate through procedural democracy, there is no reason to extend that claim to imply that

procedural democracy and formal integration should operate at the same levels of

aggregation. On the contrary, there are strong reasons to believe that procedural democracy

should be local (where the individual can most easily identify with political processes)

while formal integration should be multinational (in order to internalize, or capture, the

many externalities of market institutions and processes). Indeed, it is possible to push this

argument sufficiently to escape the conflation of procedural democracy and political

legitimation, at least in terms of relations between individuals and the state. Instead, all that

matters is that the individual accepts the state as legitimate (according to whatever formula

for legitimation predominates in the local context) and that the interests of the state are not

sacrificed through processes of integration. People may benefit from integration, but states

and governments drive the process (Moravcsik, 2002). These states may choose to establish

centralized regulatory and judicial authorities. But they may also innovate along different

lines. Indeed, such innovation may be critical to policy success.

Mary Farrell provides a good example of centralized policymaking gone awry. Her

article examines the role of the European Union’s regional and structural funds in

mitigating income disparities across member states. These funds were created as a result

successive enlargements of the European Community—to Great Britain, Ireland, and

Denmark in 1973, to Greece in 1981, and to Spain and Portugal in 1986. The explicit

intention behind the regional and structural funds was to make it easier for an ever more

diverse membership to adapt to the demands of the common market. In this sense, the

possible implications for adapting a European model to Asia are explicit: if Asia is simply a

more diverse form of Europe, then such facilitating measures can only be assumed to have a

greater importance, particularly for the advocates of institutional centralization (although,

admittedly, not for Parsons and Richardson).

As Farrell illustrates using the examples of Ireland and Spain, however, the problem is

that the EU’s regional and structural funds have not facilitated adaptation to the single

market. On the contrary, the effect of these funds had either been market distorting or

greatly overwhelmed by domestic policies. Her findings are not wholly negative. She does

suggest that such redistributive policies make it easier for politicians to ‘sell’ integration in

poorer countries. Nevertheless, the public relations value of such transfers among net

recipient countries is surely offset by the cost of selling them in those countries which are

net contributors. Here Angresano’s concern for contextual specificity again becomes

important. Would Germany have been willing to finance EU transfers were it not for

that country’s special history in Europe? It is doubtful. And it is even more doubtful that a

similar benefactor can be recruited for other regions in the world and particularly for Asia.

Farrell’s article is interesting not only insofar as it debunks at least one potential lesson

for Asia from Europe (about the utility of union-wide redistribution), but also in that it

demonstrates the exhaustion of the old European model for integration. In this sense,

Farrell overlaps with Parsons and Richardson: her analysis suggests that the European

Union has as much, if not more, to learn from European experience. Sergio Rossi’s analysis

of euro–area enlargement supports a similar view. Rossi considers whether it would be wise


for new countries joining the European Union to attempt to adhere to the same ‘con-

vergence’ criteria for participating in the single European currency (the euro) that were set

down for the original member states at the start of the 1990s. These criteria have three focal

points: the maintenance of exchange rate stability; the achievement of relative nominal

targets for inflation and interest rates (which should converge to within one-to-two

percentage points of the three best performers with respect to price stability); and the

observance of absolute reference values for ‘excessive’ fiscal deficits and outstanding

public debt (3 and 60% of gross domestic product (GDP), respectively). Rossi argues that

attempts to meet these targets will impose real economic costs on the accession countries.

In turn, these economic costs will have an adverse effect on public opinion toward

European integration.

The implications of Rossi’s argument for Asia are not readily apparent—primarily

because monetary integration in Asia remains only in the (uncertain) distant future.

However, too literal a reading of this case study in prospective policy failure misses

the point. Rossi makes it clear that whatever the advantages of monetary integration, these

are likely to be overwhelmed by a too rigid application of the convergence criteria. A

similar point applies within the monetary union, where the member states are now wrestling

with the need to reform (or reinterpret) the stability and growth pact. Taken together, these

controversies surrounding Europe’s economic and monetary union point to the need for

integration to be flexible over time as well as across countries (Jones, 2003). Hence while we

might be tempted to resist the excessive idiosyncrasy implied by Angresano’s concern for

contextual specificity, there is no doubt but that both Europe and Asia face an unending

challenge in reconciling the tension between common institutions and diverse member

states.

4. Integration and accommodation

If there are enduring lessons from Europe for Asia, they lie in the area of process and not

in the application of specific policies or institutions. Here Angresano is in agreement with

Parsons and Richardson—as are Farrell and Rossi. What has mattered most in Europe has

been the willingness of European policymakers to accommodate differences across time

and across member states. Integration has succeeded where policymakers have been able

and willing to adapt. It has failed where they have refused to recognize the necessity for

change. This is true both in terms of specific institutions and, more important, in terms of

how institutions are created and how they are reformed.

The history of European integration is a story of evolution across policy modes. It starts

with an emphasis on uniformity. The Monnet–Schuman method that was launched with the

proposal to form a coal and steel community in the early 1950s. That method focuses on the

introduction of common policies and common institutions for application across the

European Community as a whole, and it predominated until the late 1970s and early 1980s.

Thereafter, the member states of Europe accepted the need to complement the Monnet–

Schuman method with a new approach to policymaking based on the mutual recognition of

differences across countries. This new approach was embodied in the 1987 Single

European Act, and it lay the foundation for the completion of the single internal market.


Integration continued to include the elaboration of common positions, but the emphasis had

clearly shifted in favor of the acceptance of differences across countries as well.

The European Council summit at Lisbon in March 2000 brought a further change in the

mode of integration. Rather than accepting the inevitability of difference despite the

existence of common institutions, the Lisbon strategy starts from the assumption that

member states are different and so provides procedures for tackling diverse challenges in

the common interest. The goal of the Lisbon strategy is not to homogenize Europe’s

member states and neither is it to encourage further differentiation. Rather, the objective of

the strategy is to ensure that differences across the member states do not undermine the

functioning of the EU as a whole (Jones, 2001).

How successful the Lisbon strategy is at achieving this objective remains to be seen.

However, given that the ever increasing diversity of the European Union, it is clear that

some strategy for managing the consequences of difference is necessary for integration to

continue. As Europe enlarges, the pressure to accommodate difference can only be

expected to continue. In this way, the Europe of the future is likely to yield more direct

comparisons with Asia than the Europe of the past.

Acknowledgements

The editors would like to thank the past and present directors of the SAIS Bologna

Center of the Johns Hopkins University, Professor Robert Evans and Ambassador Marisa

Lino, for their support of this project. Thanks is also due to ICSEAD for co-sponsoring the

workshop at which these papers were first discussed. Despite the strong support of these

institutions, readers should know that any arguments or opinions expressed in these papers

are personal and appertain only to the authors and not their affiliations. On more personal

level, the editors would like to thank Daniel Gould, Fiona Stewart, and (particularly)

Stefanie Weitz for their assistance at various stages in the editorial process. Finally, and

most important, we would like to thank the editor of the Journal of Asian Economics,

Professor Jan Dutta, for his support and encouragement. The usual disclaimer applies.

References

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Jones, E. (2003). The politics of Europe 2002: Flexibility and adjustment. Industrial Relations Journal, 34(5),

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Kreinin, M. E., & Plummer, M. G. (2002). Economic integration and development: Has regionalism delivered

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Plummer, M. G. (2002). The EU and ASEAN: Real links and lessons in financial integration. The World

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eu–asia: links and lessons

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