Regional Integration in Europe and East Asia: Convergence and Divergence? (Routledge Warwick Studies in Globalisation)

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Regional Integration in East Asia and Europe

Despite their different origins and histories, regional organizations in Europe and East Asia are currently grappling with a striking number of essentially similar challenges. The long-term future, role and impact of organizations such as the EU and ASEAN may depend heavily on how they deal with complex and conflict-laden issues in the next few years. This volume analyses the historical development, current state and prospective future evolution of political integration in the two regions. These leading authors identify key variables that account for the contrasting political integration levels, clearly demonstrating and explaining why the rhythm of integration in both regions varies. With contributions from both Asian and European scholars on each topic, this book delivers: • • • • • •

a comparative rather than a single region focus; breakdowns of regional integration into key issue areas; analysis of monetary cooperation and integration; incisive assessments of institutional reform; an examination of the issues of enlargement, including identity, distributional equity, the distribution of power and effectiveness and decision-making efficiency; discussion of regional and international security crises.

This volume will be of significant interest to students and scholars of international political economy (IPE), international relations, European studies and Asian studies. Bertrand Fort is Director for Intellectual Exchange at the Asia-Europe Foundation (ASEF), Singapore. Douglas Webber is Professor of Political Science at INSEAD’s Europe campus in Fontainebleau, France, and was based at the school’s Asia campus in Singapore from 1999 to 2005.

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Routledge/Warwick Studies in Globalisation Edited by Richard Higgott and published in association with the Centre for the Study of Globalisation and Regionalisation, University of Warwick. What is globalisation and does it matter? How can we measure it? What are its policy implications? The Centre for the Study of Globalisation and Regionalisation at the University of Warwick is an international site for the study of key questions such as these in the theory and practice of globalisation and regionalisation. Its agenda is avowedly interdisciplinary. The work of the Centre will be showcased in this new series. This series comprises two strands: Warwick Studies in Globalisation addresses the needs of students and teachers, and the titles will be available in hardback and paperback. Titles include: Globalisation and the Asia-Pacific Civil Society and Global Contested Territories Finance Edited by Kris Olds, Peter Dicken, Philip F. Edited by Jan Aart Scholte with Kelly, Lily Kong and Henry Wai-chung Yeung Albrecht Schnabel Regulating the Global Towards a Global Polity Information Society Edited by Morten Ougaard and Edited by Christopher Marsden Richard Higgott Banking on Knowledge New Regionalisms in the Global The Genesis of the Global Political Economy Development Network Theories and Cases Edited by Diane Stone Edited by Shaun Breslin, Christopher W. Hughes, Nicola Phillips and Ben Rosamond Historical Materialism and Globalisation Edited by Hazel Smith and Mark Rupert Routledge/Warwick Studies in Globalisation is a forum for innovative new research intended for a high-level specialist readership, and the titles will be available in hardback only. Titles include: 1 Non-State Actors and Authority 6 Microregionalism and in the Global System Governance in East Asia Edited by Richard Higgott, Geoffrey Katsuhiro Sasuga Underhill and Andreas Bieler 7 Global Knowledge Networks 2 Globalisation and Enlargement and International of the European Union Development Austrian and Swedish Social Forces Edited by Diane Stone and in the Struggle over Membership Simon Maxwell Andreas Bieler 8 Globalisation and Economic 3 Rethinking Empowerment Security in East Asia Gender and Development in a Governance and Institutions Global/Local World Edited by Helen E. S. Nesadurai Edited by Jane L. Parpart, Shirin M. Rai and Kathleen Staudt 9 Regional Integration in East Asia and Europe 4 Globalising Intellectual Convergence or Divergence? Property Rights Edited by Bertrand Fort and Douglas The TRIPs Agreement Webber Duncan Matthews 5 Globalisation, Domestic Politics and Regionalism The ASEAN Free Trade Area Helen E. S. Nesadurai

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Regional Integration in East Asia and Europe Convergence or divergence? Edited by Bertrand Fort and Douglas Webber

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First published 2006 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 This edition published in the Taylor & Francis e-Library, 2006. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Routledge is an imprint of the Taylor & Francis Group © 2006 Bertrand Fort and Douglas Webber for selection and editorial matter; individual contributors, their contributions. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Regional Integration in East Asia and Europe: convergence or divergence?/Edited by Bertrand Fort and Douglas Webber p. cm. – (Routledge/Warwick studies in globalisation; 9) Includes bibliographic references and index. 1. Regionalism (International organization). 2. International agencies – East Asia. 3. International agencies – Europe. 4. ASEAN. 5. European Union. I. Fort, Bertrand. II. Webber, Douglas. III. Series. JZ5330.R4375 2005 341.24´2–dc22 2005005306 ISBN10: 0–415–36747–6 ISBN13: 9–78–0–415–36747–9

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Contents

List of illustrations List of contributors Acknowledgements Abbreviations

viii ix xii xiv

1 Introduction

1

DOUGLAS WEBBER AND BERTRAND FORT

PART I

The international context of regionalism 2 The theory and practice of region: the changing global context

15 17

RICHARD HIGGOTT

PART II

Leadership and power in regional integration 3 France and Germany: the evolution of a European partnership

39 41

U L R I K E G U E´ R O T

4 Leadership in the history of Southeast Asian integration: the role of Indonesia in ASEAN

59

DEWI FORTUNA ANWAR

5 Leadership in institution building: the case of ASEAN+3 SHIPING TANG

69

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PART III

Economic and monetary cooperation and integration 6 The origins, launching and consequences of ‘1992’ and the euro: the politics of economic and monetary integration in Europe

85

87

JONATHAN STORY

7 The Chiang Mai Initiative and the prospects for closer monetary integration in East Asia

109

NATASHA HAMILTON-HART

PART IV

Conflicts over institutional reform 8 The EU from Amsterdam via Nice to the Constitutional Treaty: exploring and explaining recent treaty reforms

129 131

FINN LAURSEN

9 The development of ASEAN’s diplomatic and security culture: not beyond ‘flexible engagement’

150

J U¨ R G E N H A A C K E

PART V

Post-cold war enlargement

173

10 The challenge of asymmetry: origins, issues and implications of enlarging the European Union

175

CHRISTIAN TUSCHHOFF

11 The Indo-Chinese enlargement of ASEAN: enhancing or undermining regional economic integration?

199

HELEN E. S. NESADURAI

12 The birth and growth of ASEAN+3

218

TAKASHI TERADA

PART VI

Security and regional crisis management

237

13 The elusive quest for a European security and defence policy: from crisis management to security strategy

239

JEAN-YVES HAINE

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14 Regional institutions and regional crises in East Asia: moving away from the ‘comfort zone’?

265

MELY CABALLERO-ANTHONY

PART VII

Conclusions

287

15 Regional integration in Europe and Asia: a historical perspective

289

DOUGLAS WEBBER

16 Europe and Asia: reflections on a tale of two regionalisms

312

AMITAV ACHARYA

Index

322

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Illustrations

Figures 10.1 10.2 14.1

GDP per capita in PPP by EU member and candidate state, 2001 Net redistribution effects of CAP by member states in 2001 GDP per capita in 2001 for ASEAN countries

176 189 281

Tables 7.1 8.1 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 11.1 11.2 15.1 15.2 15.3

Currency swaps under the Chiang Mai Initiative Votes in EU-27 (as of 1 January 2005) Overview of rounds of EU enlargement Changes in GDP for CEEC candidates during the 1990s Estimated growth effects of EU membership on selected countries EU trade with CEEC-10 EU foreign direct investment in CEEC-10 Estimated growth effects of EU enlargement on selected member states Budget allocation for agricultural expenditure in new member states, 2004–06 Funding for structural and regional policy in new member states Per capita incomes and national incomes (GDP) in ASEAN, 1996 and 2001 Incidence of poverty in ASEAN Economic interdependence and regional political integration The EU and ASEAN: a comparative overview Hegemonic leadership capacity and regional political integration

111 138 175 179 181 182 183 185 190 193 209 210 290 290 295

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Contributors

Amitav Acharya is Deputy Director and Head (Research) at the Institute of Defence and Strategic Studies, Nanyang Technological University, Singapore, where he also holds a professorship. His academic interests cover Southeast Asia, international relations of the Third World and international relations theory. Among his recent publications is Constructing a Security Community in Southeast Asia: ASEAN and the Problem of Regional Order (Routledge 2000). Dewi Fortuna Anwar is Deputy Chair for Social Sciences and Humanities at the Indonesian Institute of Sciences (LIPI) in Jakarta. She is also Director for Programs and Research at the Habibie Center in Jakarta and a member of the Board of Directors of the Center for Information and Development Studies. Mely Caballero-Anthony is Assistant Professor at the Institute of Defence and Strategic Studies, Nanyang Technological University, Singapore. Her research interests cover regionalism and regional security in Asia Pacific, human security and conflict resolution. Her latest publications include Regional Security in Southeast Asia: Beyond the ASEAN Way (Singapore: Institute of Southeast Asian Studies 2005); UN Peace Operations and Asian Security (Routledge 2005); and journal articles on ‘Revisioning Human Security in Southeast Asia’ (Asian Perspective, 3, 2004), ‘Non-State Regional Governance Mechanism for Economic Security: The Case of the ASEAN Peoples’ Assembly’ (Pacific Review, 17: 4, 2004) and ‘SARS in Asia: Crisis and Vulnerabilities (Asian Survey, 45: 3, 2005). Bertrand Fort has been the Director of Intellectual Exchange at the Asia-Europe Foundation (ASEF) since October 2002. Previously, he was Counselor for Political Affairs for the French Foreign Affairs Minister. He has been working on Southeast Asian affairs for the last 15 years as a researcher and journalist.

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Contributors

Ulrike Guérot is Senior Transatlantic Fellow and Director for Foreign Policy, Europe at the German Marshall Fund of the United States, Berlin. The most recent of her numerous publications on FrancoGerman relations, the EU and transatlantic relations is The European Paradox: Widening and Deepening in the European Union (The Brookings Institution 2004). Jürgen Haacke is Lecturer in the Department of International Relations, London School of Economics and Political Science. His research focuses on the politics, security and international relations of Southeast Asia. He is the author of ASEAN’s Diplomatic and Security Culture: Origins, Development and Prospects (RoutledgeCurzon 2003). Jean-Yves Haine is Research Fellow for European Security at the International Institute for Strategic Studies, London. His research focuses on transatlantic relations, US foreign policy and European defence and security policy. His book Les Etats-Unis ont-ils besoin d’alliés? (Editions Payot 2004) won the France-Amérique Prize. Natasha Hamilton-Hart is Assistant Professor in the Southeast Asian Studies Programme at the National University of Singapore. Her current research interests include the political economy of consulting advice to government and foreign relations in Southeast Asia. She is the author of Asian States, Asian Bankers: Central Banking in Southeast Asia (Cornell University Press 2002). Richard Higgott is Professor of Politics and International Studies and Director of the ESRC Centre for the Study of Globalisation and Regionalisation at the University of Warwick, Director of the EU Framework 6 Network of Excellence on Global Governance, Regionalism and Regulation, and editor of The Pacific Review. With Morgan Ougaard he published Towards a Global Polity (Routledge 2002) and is currently completing a book called Colonialism to Global Governance: A Genealogy of Political Development. Finn Laursen is Professor of International Politics, Department of Political Science and Public Management, and Director of the Centre for European Studies (CFES) at the University of Southern Denmark. He is editor of Comparative Regional Integration: Theoretical Perspectives (Ashgate 2003). Helen E. S. Nesadurai is Assistant Professor at the Institute of Defence and Strategic Studies, Nanyang Technological University, Singapore. Among her most recent publications is Globalisation, Domestic Politics and Regionalism: The ASEAN Free Trade Area (Routledge 2003). His forthcoming edited volume, The Treaty of Nice: Actor Preferences, Bargaining and Institutional Choice, will be published by Brill Academic Publishers in January 2006.

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Jonathan Story is The Shell Fellow in Economic Transformation and Professor of International Political Economy at INSEAD, Fontainebleau Campus, France. He has published numerous articles and books on European and international economic affairs, including most recently China: The Race to Market (Pearson 2003). Shiping Tang is Associate Research Fellow and Deputy Director of the Centre for Regional Security Studies, Chinese Academy of Social Science, Beijing. Among his most recent publications is ‘A Systemic Theory of the Security Environment’ ( Journal of Strategic Studies, 27: 1, 2004). Takashi Terada is Assistant Professor in the Department of Japanese Studies at the National University of Singapore. He has published extensively on politics in the Asia Pacific region, including the article ‘Constructing an East Asian Concept and Growing Regional Identity: From EAEC to ASEAN+3’ (The Pacific Review, 16: 2, 2003). Christian Tuschhoff is a Visiting Associate Professor in the Political Science Department of Emory University (Atlanta, Georgia) and an Adjunct Professor of Political Science at the Free University in Berlin. Among his most recent publications are ‘Why NATO is still relevant’ (International Politics 40: 1, March 2003); ‘Manifestations of (Mis)Understanding: A Transatlantic Value Community in Historical Perspective’, in I. Peters, S. Feske and C. Danse (eds), The Future of Trans-Atlantic Relations (Lit-Verlage 2005); ‘The Ties that Bind: NATO Cohesion from Afghanistan to Iraq’ in H. Gartner and I. Cuthbertson (eds) European Security and Transatlantic Relations after September 11 and the War in Iraq (Palgrave 2005). Douglas Webber is Professor of Political Science at INSEAD. His research interests include the Franco-German relationship, the European Union and comparative regional integration. He edited and contributed to The Franco-German Relationship in the European Union (Routledge 1999) and New Europe, New Germany, Old Foreign Policy? German Foreign Policy since Unification (Frank Cass 2001).

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Acknowledgements

The starting point of this volume was the conference, ‘Regional integration in Europe and East Asia: Pasts, Presents and Futures’, held at INSEAD’s Asia campus in Singapore on 7–8 July 2003. We are especially grateful to the paper presenters as well as the discussants of each session. The latter included Mr Rodolfo C. Severino Jr, former Secretary-General of the ASEAN Secretariat, Jakarta, Dr Shee Poon Kim, then visiting professor at the Graduate School of International Relations, International University of Japan, Niigata, Japan, Mr Andreas List, representative of the European Commission at its delegation in Bangkok, Mr Norbert von Hofmann, director of the regional office of the Friedrich Ebert Foundation, Singapore, Dr Yeo Lay Hwee, senior research fellow at the Singapore Institute of International Affairs, Dr Sheng Lijun, senior research fellow at the Institute of Southeast Asian Studies (ISEAS), Singapore, Mr Michel Filhol, then French Ambassador, Singapore, Mr Jusuf Wanandi, senior fellow and member of the board of directors at the Centre for Strategic and International Studies, Jakarta, Mr J. Ørstrøm Møller, Danish Ambassador, Singapore, and Dr Eric Teo, Council Secretary at the Singapore Institute of International Affairs. Without the contributions of paper-givers and discussants alike, this volume would not have been possible. We also appreciate the efforts of Ms Sophie Fort Chaussende-Bardoux for editing and proof-reading parts of this publication and of Ms Tricia Chang at INSEAD in preparing this book for publication. We are extremely grateful to Professor Hellmut Schütte, director of INSEAD’s Asia Campus, for the generous hospitality extended by INSEAD in hosting this conference, as well as to the INSEAD staff, namely Ms Fadilah Ahmad, Mr Adrian Wee, Ms Chang and Ms Donna Ho, who were indispensable in preparing the conference and ensuring its optimal staging. For their efforts in this regard, we would equally like to thank Ambassador Dr Delfin Colomé and the staff from the Asia-Europe Foundation (ASEF), Ms Caroline Say and Ms Jessica Yom.

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Last but not least we wish also to thank ASEF and INSEAD for jointly providing the financial resources that made it possible to stage this conference in the first place. Bertrand Fort Director Intellectual Exchange Asia-Europe Foundation Douglas Webber Professor of Political Science INSEAD

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Abbreviations

ABF ADB AEC AFP AFSJ AFSOUTH AFTA AISP AMF AMM APEC APT ARF ASA ASA ASC ASEAN ASEF ASEM ASP ASSK AU BBC BSA C3I C41SR CAP CDU CEEC CFSP

Asian Bond Fund Asian Development Bank ASEAN Economic Community Agence France Presse Area of Freedom, Security and Justice (EU) Allied Forces South Europe ASEAN Free Trade Area ASEAN Integrated System of Preferences Asian Monetary Fund ASEAN Ministerial Meeting Asia Pacific Economic Cooperation ASEAN+3 (ASEAN Plus Three) ASEAN Regional Forum ASEAN Swap Arrangement Association of Southeast Asia ASEAN Security Community Association of Southeast Asian Nations Asia-Europe Foundation Asia Europe Meeting ASEAN surveillance process Aung San Suu Kyi African Union British Broadcasting Corporation bilateral swap arrangement Communications, Command, Control and Intelligence (US) command, control, communications, computers, intelligence, surveillance and reconnaissance Common Agricultural Policy Christlich-Demokratische Union (Christian Democratic Union – Germany) Central and East European countries Common Foreign and Security Policy

Abbreviations xv 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

CLMV countries CLV states CM CMI COMECON CONF COPS COREPER CPSU CSIS DM DRC EAEC EAFTA EBO EC ECAP ECB ECJ ECSC ECU EDC EEC EFTA EMEAP EMI EMS EMU EP EPZ ERM ESCB ESDP ESDU ETA FDI FDP FECOM FTA FTAA GATT

Cambodia, Laos, Myanmar and Vietnam Cambodia, Laos and Vietnam Conflict Management Chiang Mai Initiative Council for Mutual Economic Assistance Conference of the Representatives of the Governments of Member States Comité Politique et Sécurité Committee of Permanent Representatives Communist Party of the Soviet Union Centre for Strategic and International Studies (Indonesia) Deutsche Mark Democratic Republic of Congo East Asian Economic Caucus East Asian Free Trade Area Effects Based Operations (US) European Communities European Capability Action Plan European Central Bank European Court of Justice European Coal and Steel Community European Currency Unit European Defence Community European Economic Community European Free Trade Association Executives’ Meeting of East Asia Pacific Central Banks European Monetary Institute European Monetary System Economic and Monetary Union (EU) European Parliament Export Processing Zone Exchange Rate Mechanism European System of Central Banks European Security and Defence Policy European Security and Defence Union Euskadi Te Askatusuna (Basque separatist organization – Spain) foreign direct investment Freie Demokratische Partei (Free Democratic Party – Germany) European Monetary Cooperation Fund Free Trade Area Free Trade Area of the Americas General Agreement on Tariffs and Trade

xvi Abbreviations 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

GDP GDR GNP IAEA IAI IDEA IGC ILO IMF INTERFET IPE IPTF IR IRA ISEAS JHA JI MAPE MERCOSUR METI MOFA MONUC MPF MRP MSD MSU MTN NAC-C NAFTA NATO NCW NEC NGO NLD OCA ODA OECD PMC PfP PPP PSC PTA

gross domestic product German Democratic Republic gross national product International Atomic Energy Agency Initiative for ASEAN Integration Initiative for Development in East Asia ( Japan) Intergovernmental Conference (EU) International Labour Organization International Monetary Fund International Force for East Timor international political economy International Police Task Force (UN) international relations Irish Republican Army Institute of Southeast Asian Studies (Singapore) Justice and Home Affairs (EU) Jemaah Islamijah Multinational Advisory Police Element (EU) Mercado Común del Sur (Common Market of the South) Ministry of Economy, Trade and Industry ( Japan) Ministry of Foreign Affairs ( Japan) United Nations Organization Mission in the Democratic Republic of Congo Multinational Protection Force (EU) Mouvement Républicain Populaire Mainstreaming Social Development Multinational Specialized Units (EU) Multilateral Trade Negotiations North Atlantic Cooperation Council North American Free Trade Agreement North Atlantic Treaty Organization Network Centric Warfare (US) Network Enabled Capability (UK) non-governmental organizations National League for Democracy (Myanmar) Optimum Currency Area Official Development Assistance ( Japan) Organization for Economic Cooperation and Development Post-Ministerial Conference (ASEAN) Partnership for Peace purchasing power parity Political and Security Committee (EU) preferential trade agreement

Abbreviations xvii 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

QMV RHAP RPR SAARC SADC SARS SAU SEA SEATO SOE SPD SPDC TEC TEU UDF UNDP UNSG WEU WHO WMD WTO ZOPFAN

Qualified Majority Voting Regional Haze Action Plan Rassemblement Pour la République Française South Asian Association for Regional Cooperation Southern African Development Community Severe Acute Respiratory Syndrome South American Union Single European Act Southeast Asia Treaty Organization state-owned enterprise Sozialdemokratische Partei Deutschlands (German Social Democratic Party) State Peace and Development Council (Myanmar) Treaty Establishing the European Community Treaty on European Union Union pour la Démocratie Française United Nations Development Programme United Nations Secretary General Western European Union World Health Organization Weapons of Mass Destruction World Trade Organization Zone of Peace, Freedom and Neutrality

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1

Introduction Douglas Webber and Bertrand Fort

Political observers might have been forgiven for thinking in December 2004 that a ‘regionalized’ world, one comprising several tightly integrated politico-economic blocs, was emerging. In Peru, representatives of ten South American states, i.e. all the states in South America except for the three Guyanas, met to launch a South American Union (SAU), ‘explicitly’ modelled on the European Union (EU) (Dyer 2004). In Laos, the ten member states of the Association of Southeast Asian Nations (ASEAN), China, Japan and South Korea agreed to transform the annual meetings their leaders had been staging under ASEAN auspices since 1997 into an ‘East Asian Summit’. This decision followed earlier agreements by the ASEAN states to strive to create ‘economic’, ‘socio-cultural’ and ‘security communities’ by the year 2020 and bilateral agreements between the ASEAN states and the three others to negotiate trade liberalization accords within the next decade. According to ‘analysts and diplomats’, the decision to launch the summit underscored the region’s ‘seriousness in pursuing its goal of achieving a European Union-style single market and community by 2020’ (Straits Times 2004). Meanwhile in Europe itself, where the EU had expanded to include ten new, mostly former Communist, member states in May 2004, a positive vote by French Socialist Party members in a referendum cast a good omen over the ratification process for the Constitutional Treaty which the member governments had adopted in June 2004 and which Laursen in this volume argues will, if ratified, bring the EU to the verge of becoming a genuinely federal state. Historical experience suggests, however, that the prospects for the emergence of a ‘regionalized’ political world, regardless of whether this is desirable, should be viewed rather critically. Regional political integration may be defined as a process of (the growing, formal or informal) coordination of public policies by the governments of geographically proximate states. The specific institutional pattern or structures associated with regional political integration may vary, but what distinguishes political integration from, for example, talks or cooperation between governments is the negotiation, adoption and implementation of common policies. So defined, regional political integration is a phenomenon that has occurred

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very unevenly in both space and time. ‘Spatially’, Europe (more correctly hitherto, Western Europe) is politically much more highly integrated than other continents or regions. ‘Temporally’, regional integration is a phenomenon that, across different regions, has tended to accelerate in certain periods (as arguably in the 1960s and early 1990s) and to recede or reach an impasse in others (as in the 1970s and much of the 1980s). These spatial and temporal variations in the occurrence or levels of regional political integration do not lead one to think that we are currently in the process of the political ‘regionalization’ of the world. The great bulk of research on regional political integration focuses on the case of Europe. As Higgott points out in this volume, much of the theoretical literature on regional integration displays a corresponding ‘Euro-centric’ bias. The present volume strives to correct this bias, at least within the limits set by the fact that the European experience remains singular in recent international political history. Collectively, the contributions to it investigate the historical development and, more so, the current state and prospective future evolution of political integration in Europe and another of the world’s politically and economically most critical regions, East Asia. The volume aims to illuminate some of the key determinants that account for these two regions’ contrasting political integration levels and, within each region and between both, to compare and contrast integration trends across several important issue areas. Comparative analysis should help us to understand why Europe is ‘more’ and East Asia ‘less’ integrated better than would separate case studies of one or the other region. To compare Europe and East Asia in terms of their current levels of political integration, in respect of both the range of ‘integrated’ issue areas and the degree of integration, is indeed to compare two very divergent cases. The countries of Northeast Asia have long been distinctive for their relatively weak participation in regional organizations or blocs. Although, through ASEAN, regional cooperation or integration in Southeast Asia has been stronger than in the northeast, far fewer issue areas have been subject to inter-state policy coordination and the extent to which decisionmaking competences have been delegated to regional political organs is far more limited in Southeast Asia than in Europe. Despite this contrast, the launching of a series of bold new regional politico-economic projects in East Asia in the years since the 1997–98 Asian financial crisis, relating especially, but by no means only, to monetary and trade issues, does raise the issue of whether, with a time lag, this region is in the process of replicating something comparable to the postSecond World War process of European integration – and whether in the future these two regions in this regard will increasingly converge. Prognoses as to the feasibility of these projects vary widely (Hund 2003, Stubbs 2002, Webber 2001, and Hamilton-Hart in this volume). But there has undeniably been rapid and profound change in the discourse about regional

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integration and the nature and level of ambition of regional integration projects in East Asia. Also, notwithstanding the different historical paths taken by regional integration in Europe and East Asia and the current disparity in political integration levels, regional organizations in both regions are currently grappling with a striking number of essentially similar challenges, ranging from monetary cooperation and enlargement to issues of institutional reform and regional or international crisis management. Comparing how differently or similarly regional organizations in the two regions respond to these comparable challenges should also shed light on the limits of their likely future convergence. From a more practical-political perspective, the long-term future, role and impact of institutions such as the EU, ASEAN and ASEAN+3 (comprising ASEAN plus China, Japan and South Korea) – and, more broadly and importantly, the degree of prosperity and peace and order in both regions – may depend heavily on how well or badly they deal with these complex and conflict-laden issues in the next few years. In both a negative and a positive sense, the experience of the one region in wrestling with these issues may contain instructive lessons for the other. The two regions may learn from each other – not just East Asia from Europe!

The international context of regional integration In the opening chapter, Higgott explores how practices and theories of regional integration have changed over time. He links the contemporary ‘wave’ of regionalism to post-cold war changes in the world’s geopolitical structure and to the process of globalization. A distinctive trait of what he labels the ‘new regionalism’ is indeed that participating states want, through closer regional integration, to mitigate destabilizing consequences of globalization or to improve their position in the global economy rather than make themselves more independent of it, as was the case in the 1960s. New theories of regionalism are notable for being less state-centric (attributing a more central role in integration processes to non-state actors, such as multinational corporations (MNCs) and non-governmental organizations (NGOs)) than their ancestors and, in the case of constructivism, for their strong emphasis on the processes of the development of new or changing regional identities. Since the 1997–98 Asian financial crisis, which fostered a new collective East Asian identity, East Asian regionalism has begun to develop, ‘above’ the level of Southeast Asia (ASEAN) and ‘below’ that of the Asia Pacific (APEC – Asia Pacific Economic Cooperation). In East Asia, as elsewhere, however, the ‘new’ regionalism co-exists with a powerful trend, fostered especially by US foreign policy post-9/11, towards the negotiation of bilateral trade agreements. The future direction of East Asian regionalism is by no means certain, but ‘Europe’s immediate past is not Asia’s immediate, or indeed long-term, future’.


Leadership and power in regional integration In numerous analyses or theories of regional integration, the inter-state distribution of power is identified as a critical determinant of the extent of regional political integration. In one such analysis, for example, Mattli (1999: 42–43) attributes a key role to hegemonic or dominant (‘undisputed leading’) powers, providing a ‘focal point’ for policy coordination as well as the financial resources required to ease tensions arising from the ‘inequitable distributions of gains from integration’. To what extent is or has been the presence of such a regional ‘hegemon’ a necessary or sufficient condition of political integration in Europe, Southeast and East Asia? This is the central issue addressed by the three chapters in this section. France and Germany have often been seen as the ‘motors’ or ‘engines’ of European integration. In her chapter, Guérot analyses the role played by these two states and their relationship in the EU. Hitherto, she argues, a Franco-German rapprochement was a necessary and sufficient condition of closer European integration. Agreement between the two governments facilitated an overall agreement among the member states because France and Germany constituted two poles around one or the other of which most of the other member states clustered. However, precisely because of their divergent positions on numerous EU-relevant issues, Franco-German relations have often been conflictual. They deteriorated especially during the 1990s, following German reunification, which exploded the pre-existing parameters of the bilateral relationship, and the demise of the Kohl-Mitterrand tandem. Although the relationship has blossomed again since the re-election of Chirac as French president and Schröder as German chancellor in 2002, the two governments have adopted common positions on certain critical issues, such as the Iraq war, that have estranged them from most other member states. In the wake of the EU’s Eastern enlargement, it is more questionable than ever before whether they can continue to play the role of ‘motor’ or ‘locomotive’ of the integration process. The concept of a ‘core Europe’ is unlikely to materialize in practice and would, if it did, more likely exercise a destructive than a constructive impact on the integration process. Anwar’s contribution deals with the role played by Indonesia in ASEAN. She recounts how the change of regime in Indonesia from Sukarno to Suharto and the corresponding shift of Indonesia’s foreign policy orientation were indispensable to the creation of ASEAN. Under Suharto, Indonesia did not strive to play a dominant role in ASEAN for fear of antagonizing other member states and damaging the organization. Rather, its behaviour in ASEAN was typically characterized by self-restraint. Partly owing to Suharto’s longevity in office and corresponding stature in the region, other states have, however, treated Indonesia as ‘first among equals’ (primus inter pares) in ASEAN and Indonesia has exercised ‘considerable leverage’ in its affairs. On economic and trade issues, this long had the

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effect of braking initiatives to liberalize intra-regional trade. Post-Suharto political instability has made Indonesian governments more inward-looking and its relations with its neighbours more volatile. Thus, other member states nowadays see Indonesia less as a regional leader than as a regional problem. However, Indonesia’s diminished participation in ASEAN affairs has not becalmed the organization entirely, as other states, notably Singapore and Thailand, have sponsored a series of economic liberalization projects. Analysing the prospects for closer integration through the ASEAN+3 process in East Asia, Tang argues in his chapter that neither Japan nor China is capable of supplying the requisite leadership for this process and that, in the short term at least, primarily for reasons relating to Japan’s invasion and occupation of China in the Second World War, it is unlikely that they will supply joint leadership of the kind historically supplied by France and Germany in the EU. Citing some examples of ‘small to medium-sized states’ supplying international leadership where large ones have not, Tang places his hopes for closer East Asian integration on the capacity of the ASEAN states and South Korea to assume the vacant leadership role in this process at least temporarily and to facilitate closer Sino-Japanese cooperation, and he sets out how they may go about this task. In the longer term, however, ASEAN+3 cannot succeed in the absence of a ‘closer and much more cooperative’ Sino-Japanese relationship. Tang is guardedly optimistic that in time such a relationship will develop.

Economic and monetary cooperation and integration In the context of the growing integration of national goods, services and financial markets and the growing propensity of financial crises when they occur to spread rapidly across borders, both European and East Asian states have been grappling with major issues of trade liberalization and monetary cooperation and integration – since the middle of the 1980s in the case of the EU, and since the early 1990s (with increased urgency since the 1997–98 financial crisis) in the case of ASEAN and East Asia. Story’s chapter deals with the attempts by the EU to forge a single market and create a single currency since the mid-1980s. Historically, processes of economic and monetary integration have ebbed and flowed in Europe according to the economic conjuncture and the shifting balance of power between national governments and EU organs. Hence the European Court of Justice (ECJ) played an important role in the genesis of the Internal Market Programme (‘1992’). By and large, however, the outcomes of the conflicts over these issues have been shaped by Franco-German struggles. The deal to launch the euro was finally done when, in 1990–91, monetary politics merged with security issues and the politics of German unification.


France succeeded in its goal of liberating itself from the monetary hegemony of the German Bundesbank, but only at the price of accepting the replication of German monetary policy institutions at the European level. Story is pessimistic as to the long-term prospects of the euro. For one thing, monetary integration has not been accompanied by a comparable degree of political integration, making the euro vulnerable, for example, to the continuation of divergent national fiscal policies. For another, the successful functioning of the euro in his view presupposes the radical reform or abolition of existing institutions and policies in continental Europe in favour of a ‘liberal market’ of the kind that exists paradoxically in one of the only three ‘older’ EU states that has not adopted the euro, namely the UK, but nowhere else in the EU. In her chapter, Hamilton-Hart traces the growth of closer monetary and trade cooperation in East Asia, especially in the wake of the 1997–98 financial crisis. Analysing the set of bilateral currency swap agreements negotiated under the ‘Chiang Mai Initiative’ adopted by ASEAN+3 finance ministers in May 2000, she argues that, although the disbursement of funds under the agreements is ‘IMF-conditional’, there are plausible reasons for thinking that this initiative may lead to greater East Asian monetary independence. She notes that there is or may be significant resistance to the implementation of trade liberalization agreements involving ASEAN and the Northeast Asian states, especially among the economically weaker ASEAN states. But although the markets of the East Asian states are already fairly integrated, these agreements will push this process further and, for this reason, increase the incentives for closer monetary cooperation. Also, in her view, the absence of hegemonic leadership and ‘unyielding political rivalry and sovereignty concerns’ in East Asia do not preclude closer East Asian monetary – or other forms of – integration in the future. Since 1998, the political demand for regional cooperation has increased markedly and all major countries in the region have accepted ‘significant limits on their autonomy’ to reap the benefits of economic integration.

Conflicts over institutional reform Conflicts over institutional reform or the ‘deepening’ or strengthening of existing or new regional organizations have divided their member states in both Europe and (South)east Asia during the last decade. In both regions, these conflicts are related to these organizations’ recent or imminent enlargement, as a growing number of member states and the growing diversity of member state interests may lead to paralysis if existing decisionmaking rules or norms are not changed. At the same time as the EU has been struggling to reform its institutions to avert this danger, the perceived inadequacy of ASEAN’s response to various crises in Southeast Asia has also generated a debate over whether and if so how it should

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revise its longstanding principle of non-interference in member states’ domestic affairs. Laursen, in his chapter, points out that hitherto the enlargement of the number of member states, the expansion of the EU’s competences and an extension of qualified majority voting and the powers of the European Parliament have all gone hand in hand. Simultaneously ‘deepening’ and ‘widening’ the integration process, however, has grown more difficult. Laursen analyses the politics of treaty reform negotiations in the EU since the late 1990s (Amsterdam, Nice and the Constitutional Treaty). Together with the preceding Single European Act and Maastricht Treaty, the Amsterdam Treaty ‘left over’ various controversial issues that were tackled, but, by general consensus, not resolved satisfactorily, in the negotiations that took place at Nice in 2000, so that they were broached again in the process leading up to the Constitutional Treaty signed by the member governments in Rome in 2004. He concludes that the EU is a hybrid entity, combining elements of an international regime resting on the voluntary cooperation of sovereign states with those of a federal state, but that it will ‘continue its trajectory towards a more federal political system’. In the short term, however, the materialization of this scenario depends on the fate of the Constitutional Treaty, which, following the results of referenda in Holland and France in spring 2005, seemed destined to fail. Haacke’s chapter explores the fate of recent attempts to challenge the longstanding principle of mutual non-interference in member states’ domestic affairs in ASEAN. Haacke describes how the Thai government’s initiative to convert other ASEAN states to its concept of ‘flexible engagement’ was effectively rebuffed in 1998. Subsequently he investigates the outcomes of challenges to the domestic non-interference principle in connection with the Myanmar military junta’s suppression of the democracy movement in Myanmar and the Indonesia government’s proposal for the creation of an ASEAN Security Community (ASC), including an ASEAN peacekeeping force. While ASEAN practised a ‘moderate form’ of ‘flexible engagement’ on the issue of Myanmar, the Indonesian ASC initiative, which implied greater ASEAN participation in the management of regional security affairs, was effectively buried. ASEAN moved more on the Myanmar issue than on the ASC because the external pressure for it to do so on the former issue was stronger and its concern that ASEAN’s international image might be damaged was greater. Overall, however, ASEAN’s diplomatic and security culture has not changed significantly. Haacke identifies several reasons why the resistance to more powerful regional institutions is so strong, ranging from the persistence of a ‘strong sense of nationalism’ among some member states across perceptions of vulnerability and insecurity vis-à-vis external as well as internal forces to opposition to the perceived hegemonic ambitions of the one or other member state, first and foremost evidently Indonesia.


Post-cold war enlargement Following the end of the cold war, the EU and ASEAN have both expanded to integrate former Communist states, in Central and Eastern Europe in the case of the EU and in Indo-China in the case of ASEAN, which, through ASEAN+3, has also strengthened its ties with the states of Northeast Asia. Enlargement has posed and still poses important issues of identity, distributional equity, the distribution of power and effectiveness or decision-making efficiency in both organizations. Given the magnitude of the challenges involved in the ‘post-Communist’ enlargements of both organizations, it can by no means be taken for granted that these new members will be absorbed as ‘easily’ as previous new entrants. Tuschhoff analyses the origins, process and implications of the EU’s Central and Eastern European enlargement, the ‘most ambitious’ that the EU has undertaken since its creation. He sees this enlargement process as characterized by a ‘multidimensional asymmetry’ not only between the more powerful old and less powerful new member states, but also between the existing members themselves. As the latter had no very compelling economic interests in enlargement, approval for it was secured primarily by appeals to common values and politico-security goals – such as the extension of the zone of democracy, stability and peace in Europe – that underlie the integration process. Tuschhoff argues that the eastern enlargement certainly adds to the ‘already substantial diversity of interest among member states’ and – ominously – that whether even reformed EU institutions will be able to cope with this challenge is an ‘open and unpredictable question’. The fate of the integration process will depend especially, in his view, on whether the enlarged EU can develop into a ‘community of [common] values’ that would render irrelevant the ‘greatly increased political and economic asymmetries’ associated with enlargement. Nesadurai’s chapter focuses especially on the implications for ASEAN economic integration of the organization’s enlargement to include the three former Communist states of Indo-China (Vietnam, Laos and Cambodia) in the 1990s. This enlargement was facilitated by the absence, unlike in the EU, of any political criteria (such as a democratic system of government) for ASEAN membership, prior market-oriented economic reforms in the three states and the new as well as most of the existing member states’ support for the time-honoured ASEAN principle of mutual nonintervention in member states’ domestic affairs. Although it exacerbated pre-existing economic disparities within ASEAN, the Indo-Chinese enlargement has not so far prevented continued intra-regional economic liberalization, which will be implemented more slowly in the new member states. Nesadurai warns, however, that if regional economic liberalization is not accompanied by measures to distribute the gains of this process more equitably, there is a significant danger that growing social tensions and conflicts – not only in the Indo-Chinese states, but also among relatively

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deprived regions or groups in the old member states – will eventually render further regional economic liberalization politically impossible. Programmes currently in place to diminish intra-ASEAN income disparities, vital as they are, need to be supplemented by greater participation of ‘civil society groups’ in national policy making. Terada’s contribution concerns the other recent ‘enlargement’ of ASEAN, the rapid growth of its ties with the three Northeast Asian states, Japan, China and South Korea, mainly within the ASEAN+3 process. For Terada, the rapid emergence and development of ASEAN+3 reflects the growth of a new East Asian regional identity. He identifies two variables as drivers of this trend, the one internal and the other external. ‘Internally’, although the first proposals for closer ties between East Asian states date back to the early 1990s, East Asian cooperation has been fostered mainly by the 1997–98 Asian financial crisis, which greatly boosted perceptions of economic interdependence as between Southeast and Northeast Asia and which governments in the region felt was not well handled by the International Monetary Fund (IMF) and the US. The external variable is the trend towards closer regional economic integration in Europe (single currency, eastern enlargement) and the Americas (Free Trade Area of the Americas (FTAA) project). Terada recognizes that China and Japan are competing with each other for the allegiance of other East Asian states with their various proposals for closer cooperation with ASEAN members and South Korea. Thus, Sino-Japanese competition has actually been a ‘positive force’ for regional economic cooperation. While China and Japan have become enthusiastic participants in this process, some states in ASEAN, which launched it, fear, on the other hand, that they will be marginalized in an East Asian regionalism. These worries are ‘still a major impediment’ to closer ties between Southeast and Northeast Asia. All manner of divisions and conflicts between East Asian states notwithstanding, the rising volume of interactions between government leaders and officials within the ASEAN+3 process may give rise to the mutual trust and sense of solidarity required for greater regional integration.

Security and regional crisis management Neither the EU nor ASEAN was conceived at the outset as a military alliance or collective security organization, although both were founded at least partly or indirectly with the goal of containing Communism. Through the North Atlantic Treaty Organization (NATO) in Western and Southern Europe and a network of bilateral alliances in non-Communist East Asia, the US was the primary provider of military security to both groups of states. In the 1990s, the wars in former Yugoslavia and East Timor, the one on the periphery of the EU, the other within Indonesia at the time of its occurrence, raised issues of whether, after the cold war, these organizations could retain their credibility or aspire to shape

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the collective destiny of their member states or immediate neighbourhoods without possessing a capacity for military intervention, whether it was feasible for them to develop such a capacity, and how their future security relationships with external powers, most notably with the US, would be defined. Haine’s chapter identifies the conflicts in Bosnia and Kosovo and the Iraq war as ‘watershed’ events that provoked grave crises within the EU as well as inside the Atlantic Alliance but that have also galvanized efforts to develop a common European security and defence policy. While the process of developing a European security and defence policy has been ‘protracted, arduous and frustrating’, ‘some important progress’ has nonetheless been made in recent years. Beginning with the Saint-Malo process initiated by France and the UK, the EU has begun to develop stronger own military intervention capabilities, albeit slowly. Having adopted a new ‘Security Strategy’, it has also adjusted in terms of strategic doctrine to the new post-9/11 international environment and become internationally more active. As a consequence of inadequate levels of military spending and the too slow pace of transformation of European military forces from cold-war era territorial defence to ‘intervention and expeditionary warfare’, ‘severe shortfalls’ remain in the capacity to deploy EU forces for crisis management abroad. But defence, once arguably the ‘Cinderella’ of European integration, has meanwhile become ‘one of the most promising areas for cooperation’ within the EU. In her chapter, Caballero-Anthony explores the nature and adequacy of the responses of ASEAN and its offshoot, the ASEAN Regional Forum (ARF), to the diverse crises that have struck Southeast Asia since the late 1990s. She argues that criticisms of these organizations’ inaction or lack of effective action in the face of regional crises such as those in East Timor or relating to Islamic terrorism are overdrawn. The preoccupation of many analysts with the shortcomings of the ‘ASEAN Way’ or the organization’s principle of non-interference in member states’ domestic affairs disguises the fact that ASEAN has reacted to recent crises and ‘not been entirely ineffective’ in addressing them. There is little chance of the development of an ASEAN with strong supranational organs autonomous of the member states. Nevertheless, the crises have caused ASEAN members to increase the level of ‘institutionalization’ of their cooperation in the sense of creating more ‘rules-based mechanisms’ for conflict resolution, albeit at a very gradual and incremental pace.

Conclusions Unsurprisingly, the above contributions do not provide a uniform analysis of the current state and prospective future trajectories of European and East Asian regional political integration. Overall, however, there is a negative relationship between current degrees of integration and predicted future

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integration trends. Most European scholars (Guérot, Story, Tuschhoff ) argue explicitly or implicitly that closer political integration in Europe may no longer be feasible or that it may even prove impossible to maintain current levels of integration. Although Haine presents an upbeat analysis of recent developments in respect of security and defence policy, efforts to promote closer integration in this field are starting from a low level and confront substantial, especially material, obstacles. Laursen sees the EU advancing towards a ‘more federal’ polity, but notes that this outcome would be jeopardized if the Constitutional Treaty, as seemed certain following it, rejection in referenda in France and Holland, should not be ratified. By contrast, most, but not all, the scholars of Asian integration (Tang, Hamilton-Hart, Terada, Caballero-Anthony) expect integration to advance in Asia. The thrust of Anwar’s and Nesadurai’s analyses is more equivocal, while Haacke’s position is the most pessimistic, to the extent that he sees no significant change in ASEAN’s dominant ‘security and diplomatic culture’. Overall, the contributions thus suggest that the future may witness some convergence between Europe and East Asia in terms of regional political integration levels. Not even the most optimistic analysts of East Asian integration, however, make the argument that regional institutions in East Asia are likely to grow as strong or assume similar forms or powers as those in Europe. In this sense, there is a consensus that, even if this process should advance in East Asia, political integration in this region is not likely to result in similar outcomes to those in Europe. Assessing the relative strength or weakness of regional institutions, however, should not blind us to the fact that as they try to preserve or strengthen their decision-making capacities while expanding their membership, regional organizations in Europe and East Asia are not only facing comparable challenges but are also arguably resorting to comparable strategies, in particular to enable some subsets of member states to integrate more rapidly than others (‘reinforced cooperation’ in the EU, ‘10 minus x’ in ASEAN). The relative weakness of East Asian regional institutions does, however, raise the issue of how stable and durable regional political integration is or can be in the absence of what Mattli (1999) has described as ‘commitment institutions’, i.e. organs that monitor and, if need be, can also enforce compliance with previously agreed policies by member states. Renewed efforts within ASEAN to develop dispute-settlement mechanisms to ensure compliance with agreed regional trade liberalization policies suggest that member states recognize that, in the absence of stronger common institutions, major regional projects may ultimately fail to be implemented, as happened often in the past. The first of two concluding chapters, by Webber, tries to provide an historical explanation of variations in levels of regional political integration between Europe and East Asia. He argues that the principal existing – neo-functionalist/transactionalist and realist/intergovernmentalist – theories fail to explain interregional variations in levels of political integration.

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Despite having been developed to explain the European ‘case’, they do not even provide a convincing account of Europe’s relatively high level of political integration compared with that of other regions, including East Asia. Webber attributes European ‘exceptionalism’ to a specific combination of factors – relating to the international and regional contexts as well to domestic politics in France and Germany – that created a temporary ‘window of opportunity’ for inter-state integration in the early 1950s and was conducive to the creation of relatively strong supranational institutions whose powers were subsequently difficult to curtail. In East Asia, the cold war divided non-Communist Japan and Communist China rather than uniting them as it did in respect of France and Germany in Europe. Neither did Japan exhibit the same interest in cooperating with its smaller non-Communist regional neighbours as Germany did in Europe, nor – in the absence of a state that could have provided a counterweight to Japan as did France to Germany in Europe – were these states as prepared to cooperate closely with Japan as were their counterparts in Europe with Germany. Political integration among the nonCommunist East Asian states was thus confined to Southeast Asia (ASEAN), where, however, the demographically largest state, Indonesia, was much too poor and the richest state, Singapore, was much too small to act as a ‘motor’ of regional integration. Originally, the cold war had provided the important raison d’être of integration in both regions. With its end, increased diversity brought about by enlargement and growing divergence between the ‘demand’ for regional-level action and the capacity to ‘supply’ policies to deal with a growing volume of transnational issues, regionalism is in a precarious state in both East Asia and Europe. According to Webber, if there is any future convergence between the two regions in terms of levels of political integration, it is just as likely to come about through diminishing integration in Europe as through growing integration in East Asia. In the second concluding chapter, Acharya takes issue with those Western scholars who argue pessimistically that, in terms of regional cooperation and stability, contemporary Asia resembles nineteenth-century rather than early twenty-first-century Europe. Prospects for peace and stability in Asia have improved as a consequence of the same processes of growing economic interdependence, the democratization of domestic political systems and the emergence of regional institutions that have operated over a longer period and advanced further in Europe. True, the goals of regional cooperation in Europe and Asia are very different. Whereas the Europeans, in Acharya’s view, are determined to ‘transcend the sovereignty-bound nation-state system’, Asian states’ interest in multilateralism derives from their desire to ‘preserve the existing rules of international relations’. However, in particular the greater diversity that enlargement will bring and the persistence of strong national identities may preclude ever greater political integration in Europe. Asia’s regional institutions may also be ‘in

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the doldrums’, but this does not matter so much, as the region has not put as many eggs in the ‘basket’ of regional integration as Europe, but has rather developed ‘ad hoc and problem-specific’ inter-state cooperation, ‘combining bilateral, concerted unilateral and sub-regional’ elements. This approach to regional order, Acharya argues, may prove ‘more practical and productive’ than Europe’s ‘single-minded pursuit of supranationalism’.

References Dyer, Gwynne (2004) ‘South American Union Taking Shape’, Straits Times, 9 December. Hund, Markus (2003) ‘Asean Plus Three: Towards a New Age of Pan-East Asian Regionalism? A Skeptic’s Appraisal’, The Pacific Review, 16: 3: 383–417. Maatli, Walter (1999) The Logic of Regional Integration: Europe and Beyond, Cambridge: Cambridge University Press. Straits Times (2004) ‘Abdullah Sketches Vision for East Asia’, 7 December. Stubbs, Richard (2002) ‘ASEAN Plus Three: Emerging East Asian Regionalism?’, Asian Survey, 42: 3: 440–455. Webber, Douglas (2001) ‘Two Funerals and a Wedding? The Ups and Downs of Regionalism in East Asia and Asia-Pacific’, The Pacific Review, 14: 3: 339–372.

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Part I

The international context of regionalism

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2

The theory and practice of region The changing global context1 Richard Higgott

Introduction The analysis of regionalism and regionalization is fashionable in the contemporary era (see Coleman and Underhill 1998; Fawcett and Hurrell 1995; Gamble and Payne 1996; Grugel and Hout 1999; Mansfield and Milner 1997; Mattli 1999). This has much to do with the resurgence or emergence of regional projects in the 1980s and 1990s. In North America scholarly attention was boosted by the creation of the NAFTA (North American Free Trade Agreement). In South America, MERCOSUR (Common Market of the South) was created in 1991. ASEAN (the Association of Southeast Asian Nations) became more assertive in Asia during the 1990s, and 1989 saw the birth of APEC (Asia Pacific Economic Cooperation). Meanwhile the SADC (Southern African Development Community) became a focal point for regeneration following the end of apartheid. Most prominently, the European Union’s single market programme intensified economic and political integration in Western Europe from the mid-1980s. This process continued with the achievement of monetary integration among a majority of states in the late 1990s. In short, regions, regionalism and regionalization have, once again, come to prominence. Thus the aim of this paper is to ask a range of questions about the general theory and practice of regions in three periods: 1 2 3

How, and in what contexts, have various theoretical approaches to regional integration developed in the past? What theories of regional integration are germane in the present era, and to what extent do they meaningfully travel across different geographical regions? How are our understanding(s) of region, the practice of which might change going forward in the twenty-first century, evolving?

In keeping with the comparative flavour of this volume, Part 1 of this chapter is focused principally on the early theorizing about Europe. Part 2 looks at the failure of this ‘first-wave theorizing’ and the theoretical and

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empirical changes – encapsulated in that most general of hosting metaphors, ‘globalization’ – that have led to second wave theorizing. Part 3 looks at new thinking on regionalism and does so in a largely Asia-Pacific context. In asking questions about the manner in which regionalism appears to be developing since the turn of the century, the paper concludes that European and Asian approaches to regionalism are substantially different rather than that, as is often assumed, Europe’s past represents Asia’s future.

Part 1: the past The study of regions has occurred in two waves. The first gathered pace as a sub-field of international relations (IR) from the late 1950s and the second emerged in the context of the globalization of the late 1980s and the 1990s. Early scholarly debates about regionalism emerged from three primary sources: • • •

political-normative questions about an interest in functional and technocratic imperatives for new forms of authority beyond the state; the gradual formalization of the social sciences in the United States and especially an interest in a social science of functionalist community building that emphasized rigour over idealism; the appearance of actual regional integration schemes in Western Europe (the European Coal and Steel Community, the abortive European Defence Community and the eventual European Economic Community) that became the intellectual laboratory for the study of regionalism.

In the early days, neo-functionalists saw ‘spillovers’ leading to economic and (ultimately) political integration. They theorized the transcendence of the state system rather than its survival and the process of economic and political integration being driven by rational actors, be they supranational institutions or self-regarding producer groups. Neo-functionalists (Haas 1956 and 1964; Lindberg 1966; Schmitter 1971; Nye 1968 and 1971) used the European experience to generalize about the prospects for regional integration elsewhere. The emphasis on functional pressures, growing interdependence and the significance of non-state actors stood in contrast to the more orthodox realism in American IR. This was all short-lived. The publication of Haas’s devastating The Obsolescence of Regional Integration Theory (1975) suggested that the very idea of producing theoretical models of regionalism was misconceived. Two problems with integration theory had emerged: •

The European experience had not been replicated elsewhere. Analogous projects such as the Latin American Free Trade Area and the East African Common Market failed.

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•

Integration theory in Europe had underestimated the pervasiveness of nationalist sentiment.

Rather than being recidivist, the behaviour of ‘dramatic actors’ such as de Gaulle shifted the policy style of the European Communities in an intergovernmentalist direction (Wallace 1996). European integration remained complicated by the domestic politics of the member states. But the dissolution of ‘integration theory’ was not just a consequence of the discrepancies between theoretical predictions and empirical ‘reality’. It was also marginalized by a growing distaste for grand predictive social theory and interest in ‘interdependence’, which became a rallying point for the young sub-discipline of international political economy (IPE) (Higgott 1993; Katzenstein et al. 1998). But the emergence of the single market programme in the mid-1980s produced a partial revival of neo-functionalist integration theorizing. An activist European Commission, under Jacques Delors, offered an empirical reinstatement of the neo-functionalist idea of supranational activism. The single market was suggestive of a number of spillovers into social policy, economic and monetary union and political integration more generally (Tranholm-Mikkelsen 1991). Yet, if anything, these developments underscored the distinctive nature of regional integration in Europe. The complex nature of the Community’s decision-making processes drew attention away from IR paradigms towards intergovernmentalist theories (Moravscik 1998) and new forms of policy analysis (Hix 1999). More traditional state-centric accounts of integration, clinging to outdated realist state theory, failed to capture the ‘everyday’ regulatory complexity of the European policy process and were unsatisfactory (see Rosamond 2000). Interestingly, this reawakening of European integration occurred more or less simultaneously with the appearance of regional free trade areas elsewhere. The appearance of schemes in North and South America, the Asia Pacific and Southern Africa were suggestive of a new regionalized world order, which would be triadic, with Europe, the US and East Asia as the nodal points. The drivers of this process were the revised geopolitical security structure that followed the end of the cold war and the growth of globalization, especially, but not only, in its key economic forms of the liberalization of global trade and the deregulation of global finance. The former loosened the possibilities of trans-border activity and inter-state exchange. The latter questioned economic relations founded on the premise of national territory. Both stressed the fuzziness of the distinction between the ‘domestic’ and the ‘international’. Regional cooperation was thought to be a spur to enhanced global competitiveness. Nowhere did regionalism appear to be getting stronger throughout the first half of the 1990s than in East Asia and the Pacific. For many, the growth of APEC and ASEAN and the

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so-called ‘Asian way’ to regional cooperation was a new form of regionalism. But the financial crises of the late 1990s challenged this view. Beyond Europe: regionalism in Asia after the financial crises The financial crises of the late 1990s may not have marked a watershed in the study of regionalism, but they provoked a number of issues of regional and global economic management that had been less obvious in the heady ‘emerging market’ era of the early 1990s. This new sense of curiosity was perhaps most acute among scholars of regional processes in Asia. Despite the now well-known hype that accompanied its development throughout the 1990s, the much-vaunted APEC initiative seemed incapable of delivering even short-term palliative responses to the regional financial crises. This posed serious questions about APEC’s efficacy as an emergent mode of regional organization in the Asia Pacific (see Ravenhill 2001). This reading was further justified by the abortive Japanese initiative to establish an Asian Monetary Fund in the wake of the crises. The collapse of this plan in the face of US opposition highlighted the fragility of a Pacific-wide regional project that seemed dependent on the hegemonic blessing of the US. It can, of course, be argued that APEC was only ever a trade-led initiative, neither intended nor equipped to deal with financial crises (Harris 2002). On the other hand, a powerful argument can be made that the crises opened the way for much tighter, clearer and less idealistic thinking about regionalism in Asia (see Higgott 1998a). In the longer term, the crises may have pushed states to think again about how best to build a regional order capable of preventing financial crises (or at least competent to deal effectively with those crises when they arise). For example, discussions over the creation of a network of currency swaps and other financial arrangements arising from, and subsequent to, the ADB (Asian Development Bank) meetings in May 2000 represent a new approach to regional cooperation. In the longer term these could lead to ‘a new monetary regionalism’ (Dieter and Higgott 2003). If this were to happen, it would not be inconsistent with the view that monetary integration in Europe had been stimulated by a collective will to deal with the potentially ruinous consequences of internationally mobile capital (Verdun 2000). Even if such initiatives amount to nought, the negotiations at least suggest a growing regional self-definition of ‘East Asia’ as a valid economic space with a discernible political voice. Analytically, this suggests that such policy initiatives do not simply arise as merely rational spillovers from financial integration. Rather they depend upon an emergent sense of collective identity that frames the way in which elites respond to exogenous shocks. This highlights the centrality of two important variables in the study of regionalism largely absent from first-wave theorizing:


• •

the importance of identities in region building; and the catalytic impact on regionalization of external challenges emanating from the rapid growth of globalization.

But regions, by their very existence, often mediate between national and global effects. As Part 3 of this chapter will suggest, recent events in Asia allow us to identify roles that nascent regional organizations play as mediating layers of governance between the nation state and global institutions. In the Asian case this may involve the deflection of dominant Western ideologies, preferences and economic models that are bound up with the philosophies and actions of the international financial institutions. In Europe, a purpose of such a mediating layer may involve the (perceived) protection of the ‘European social model’ against the assimilating tendencies of deregulated Anglo-American capitalism (Hay and Rosamond 2000). Given current theoretical trends in international scholarship, there seems to be ample space for the development of both rationalist and constructivist approaches to regional integration. Constructivists, with their concentrated research focus on identity, have posed serious challenges to the way in which IR has thought about inter-state interaction. Moreover, they treat institutions (such as regular forums for regional dialogue) as ‘social’ venues rather than just capsules in which rational action takes place. Therefore various forms of constructivism ask us to contemplate the relationship between institutionalized interaction and the emergence of regional identities and interests. Rationalists need not follow wellworn state-centric paths. Strategic action by state actors may be, indeed certainly is, still important, but such action must continue to be placed within a wider complex of actors (both state and non-state) and institutional venues that conspire to influence the development of regionalism (Hurrell 1995). At the same time, tried, trusted and ‘believed to be efficient’ approaches to institutional design and strategic action are likely to be popular with governmental actors. We would expect them to be repeated, as rationalists might suggest, in the behaviour of states at the regional level. It is for this reason that the networking style of political relationships practised within the boundaries of many Asian states found their way throughout the 1990s into the political relationships that, as with ASEAN, developed at the regional level (Acharya 1997 and 2001). Where earlier work often saw regionalism as a defensive mechanism to reduce dependence on the international economy, the ‘new regionalism’ sees it as more proactive. It is a means of greater access to global markets, not of securing regional autarchy. Regionalism is also now more multifaceted and multidimensional than in the past. States engage in any number of overlapping endeavours without sensing contradictions in such a process. Where the defensive legacies of the earlier phase remain – among political

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elites sceptical of the unregulated nature of contemporary global capitalism – this does not imply a growing regional resistance to all elements of the globalization process. Indeed, the extent to which regional organizations act as a spur to global economic liberalization is an important question. Again, as will be suggested in Part 3 of this chapter, APEC was designed to facilitate wider global processes and could be read as a (failed) means of preventing the emergence of a specific ‘East Asian’ regionalism. We should also consider the changing rationale for joining (or forming) regional organizations for many developing states. On one level, the formal criteria established for membership by organizations – pace EU requirements for its new members in 2004 – forces policy change on aspirant members. In the very process of liberalizing to meet EU standards, these economies have become more open to the global economy in general. In such cases regionalism can be seen as a pathway to globalization. This is a key distinction between current and old explanations for regional projects. Rather than building (or joining) regional arrangements to enhance independence from the global economy, many developing states now see regionalism as a measure to ensure continued participation in it. This type of north–south regionalism, predicated on the extension of neo-liberal economic paradigms into the developing world, can be understood as a means by which developing states consciously increase their access to investment and markets in developed cores at the same time as they enhance their regional voices in the wider global economic dialogue. As decisions are made to harness the economic benefits of international trade and investment, this suggests a symbiotic process in which responses to globalization can lead to the promotion of regional projects and the regions themselves can simultaneously promote globalization. Thus regionalism can be simultaneously a response to, and a dynamic behind, globalization. We are dealing, in short, with mutually reinforcing and co-constitutive rather than contending processes. Regional regimes are not barriers to globalization, but rather ‘in-betweens’. The regional project is both part of and a facilitator of globalization and a regional counter-governance layer in the world political economy. This relationship between regions and neo-liberal paradigms and economic policies stands at the heart of the new assessments of regionalism and regionalization at the beginning of the twenty-first century. Within this broader theoretical context, a quick temporal and interregional comparison of Europe with Asia – where there are clearly rival regional projects – delivers interesting results. The multiple voices of region in contemporary Asia contrast with the EU, which is now unequivocally the dominant regional organization in Europe. While this characterization of Asia could easily have been applied to Europe at the end of the Second World War, it is not to say that Europe’s present is Asia’s future. Different variables, or similar variables in different contexts, are likely


to yield different outcomes. The key question to ask is whether such comparison delivers usable theoretical knowledge. But the very fact that policy makers (rightly or wrongly) often conceptualize regionalism with reference to the European model is in itself an important reason for scholars to explore the possibilities of comparison – if only to show that we are not dealing with functionally equivalent entities. It is clear that policy learning and the politics of emulation (or in many cases the politics of avoidance) are major features of current deliberations about regionalism. This is especially the case in the contemporary global economy where regionalism is a response to the internationalization of the division of labour and production. The time lag between European developments and the construction of regional orders elsewhere has meant that region-building elites have had the opportunity to learn from the European experience. As often as not, this has led to a desire for avoidance, rather than emulation, of the ‘Brussels model’. The less institutionalized approach that emerged in Asia in the early 1990s represented a deliberate choice to avoid the perceived ‘Cartesian’ legal formalism of the EU (see Higgott 1998b). So, whether viewed negatively or positively, the European experience looms large. It is, ironically, the EU as an exercise in regional integration that is a major obstacle to the development of analytical and theoretical studies of regional integration elsewhere. For example, the oft-repeated characterization of Asian and Latin American regionalisms as ‘loose’ or ‘informal’ reflects a teleological prejudice informed by the assumption that ‘progress’ in regional organization is defined in terms of EU-style institutionalization. There remains a latent assumption that EU represents the paradigmatic case of regionalism against which all other regional projects are judged. For some, the Union’s longevity, institutional complexity and policy reach mean that it is more than just an international organization. Indeed, Hix (1994 and 1999) argues that the EU should be studied as a political system rather than an integration project. This is an extreme position (see Rosamond 2000), but it raises the issue of whether the EU is in fact an instance of integration, and thus of regionalism, at all. This dominance of the EU on scholarly mental maps imposes an understanding of regionalism as being bound up with formal institutionalization. To equate mature regionalism with the creation of supranational politico-institutional bodies equivalent to the European Commission, the European Parliament and the European Court of Justice automatically prejudices any conclusions we might want to make about the emergence of a world order based on alternative forms of regional organization and cooperation. This approach also assumes that key political economy questions can only be addressed in this context. Thus there remains in much analysis a tacit, if not explicit, assumption that in order for there to be ‘proper regionalism’, a degree of EU style

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institutionalism should be in place. This emphasis on institutional regionalism proceeding through a mixture of intergovernmental dialogue and treaty revision is at the heart of the now classic model of economic integration developed over 40 years ago by Bela Balassa (1962). Balassa used the term ‘economic integration’ to refer to the creation of formal cooperation between states and the forward movement from a free trade area to a customs union, a common market, a monetary union and, finally, total economic integration. This view of regionalism, with its teleological reasoning, also informed the neo-functionalist version of integration theory (Webb 1983). Despite scepticism about the virtues of unidirectional models of modernization in the social sciences, this model still frames discussion, even among those who eschew trade as the key spillover dynamic (see Dieter and Higgott 2003).

Part 2: the present The preceding approaches to regionalism were all statist. Advances in regionalism were seen as driven by intergovernmental bargains. In the economic models of Balassa and the political models of Haas, the integration of economies created functional pressures for the deepening of economic integration. But as economic integration deepened, so too, it was assumed, authority and regulatory capacity would drift to the regional level. Also at the heart of this way of thinking was an issue that has become central to second-wave deliberations about regionalism. This is the relationship between what Wallace (1990) called informal and formal integration and Higgott (1997) identified as de facto and de jure integration. The former refers to integration via the emergence of transnational space among private market actors. The latter sees integration led by the formal authority of governmental actors through agreement or treaty. The key question then becomes whether informal institutional cooperation precedes formal economic integration or vice versa. To answer this question we need to distinguish between regionalism and regionalization. It is increasingly accepted that regionalization refers to those processes of integration that arise from markets, private trade and investment flows, and from the policies and decisions of companies rather the predetermined plans of national or local governments. Regionalism refers to those stateled projects of cooperation that emerge as a result of intergovernmental dialogues and treaties. This distinction opens the study of regional integration in those parts of the world where formalized – EU style – regional organizations are absent. But, as in the relationship between regionalization and globalization, these are not mutually exclusive processes. Failure to recognize the dialectic between globalization and regionalization can mean that we impose a regional level of analysis on something that is actually global. We must consider the salience of extra-regional relations whenever we are considering regionalization. Failure to do this was a principal past deficiency of integration theory.


For example, the growth in intra-regional trade in East Asia is the consequence of the fragmentation of production across national boundaries. With components produced in factories across the region, the trade component in the production of a single commodity increases dramatically. The final goods produced as a result of this intra-regional trade still have to be sold somewhere, be it inside or outside the region. Is this regionalization or globalization? The dichotomy clearly does not help. The answer is both: the processes of developing regional production networks are themselves driven by global processes and are contingent on global markets. How we map economic and political space is also a concern. Strict national or sovereign parameters should be avoided when identifying regionalization. In addition to looking for a correlation between the national state and regional membership, we should also examine the wider groups and classes of actors that are involved in processes of integration. The growth of transnational class alliances that integrate elites, but not usually the wider populations, of a given country is the key here. Nowhere is this better illustrated than in the context of the development of APEC, where there is a clear disjuncture between the enthusiasm for the process among corporate and bureaucratic elites and the disinterest, if not hostility, towards the project in the wider communities in many of the member states. For obvious reasons, assessments of ‘region’ invariably focus on integration at the expense of the possible counterfactual process – fragmentation (if not disintegration). As sub-national areas or sectors become externally oriented – as part of emerging transnational economic space – we should ask how they relate to the configuration of national political space. For example, in the Export Processing Zones (EPZ) of Malaysia, the foreign subsidiaries were more integrated with Singapore’s free trade industrial sector than with ‘local’ industry (Barnard and Ravenhill 1992). A further unfortunate problem of regional analysis over the last few years is that some observers have made judgements on technical and economic change and extrapolated from them into the socio-political sphere in a manner for which the evidence is, at best, flimsy. Nowhere is this better illustrated than in what is often called the ‘hyperglobalist’ literature (pace Oman 1999), which sees the declining salience of state actors and state borders in the rise of what Kenichi Ohmae (1995) labelled ‘region states’, thus prematurely rendering the state to the role of mere passive actor and victim of cross-border processes. As the next section will show, we are fortunately beyond this simplicism. The ‘hyperglobalization’ thesis misconstrued how economic space is politically and socially (re)constructed over time. Economic regionalization requires governments to sanction the relaxation of barriers to trade and investment, or, more proactively, to facilitate the provision of incentives

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to investment and trade sponsorship. This is not to privilege state-led or de jure regionalism. Rather, it is to identify the manner in which it relates to de facto market-led regionalization in a synergistic fashion.

Part 3: the future I have suggested that scholarly interest in regionalization does not, in all instances, adequately keep pace with the changing understandings of its practice on the ground. This is especially true in the analysis of East Asia, where regionalization is perhaps a more obvious focus of research than regionalism. But something new is afoot. A ‘new regionalism’ may be emerging. There may, however, also be other trends – such as the growing interest in bilateral FTAs (free trade areas) – that may also seem inimical to regionalism. New regionalisms are invariably defined in rejection of the old – ‘old’ in terms of both theory and practice. At the level of practice, the key feature of the ‘new’ is the sheer number of formal regional arrangements. There are few countries that are not members of at least one regional organization and most are members of more than one. This upsurge in regional activity can be explained in several ways: •

• •

The promotion of export growth strategies has advanced the reality of increased economic regionalization. In this regard, the increased adoption of varieties of domestic neo-liberal policies is an explanatory variable for regional initiatives. This is one way in which the new regionalism comes to be embodied in the South. The need to respond to globalization or participate in the global economy is a driving factor for governments, both weak and strong. A final spur to new thinking comes from the frustration with the dominance of intergovernmentalist explanations that emanate from much theorizing, and in particular the stubborn dominance of hegemonic stability theory in much US-based literature. An understanding that state actors are but one set of agents among many is at the heart of newer approaches. Moving away from this old ‘statist’ approach is a defining characteristic of ‘new regionalisms’.

First-wave theorizing polarized debate between state-centric perspectives and those in which states were more or less written out of the equation. Newer perspectives recognize the complex cocktail of state actors, interstate and global institutions and non-state actors (especially multinational corporations, emerging civil society organizations and NGOs) that all have an effect upon regional outcomes. Of course, the salience of these actors varies. Trying to find a ‘one size fits all’ explanation is pointless. Moreover, cross-border micro-regionalism makes our picture increasingly complex. The authority and efficacy of national governments in dealing with trans-boundary issues has been transformed, some would say


undermined, by a dual movement – both ‘upwards’ and ‘downwards’ – that results in the transfer of national sovereignty to the EU in some issue areas. Institutional changes at the EU level, as well as new communication technologies and the development of transportation, have encouraged the formation of regional networks based on common developmental interests. Asia provides a number of interesting insights – as in ASEAN’s emphasis on free trade in the development of AFTA (ASEAN Free Trade Area) (see Nesadurai 2003) combined with a growing interest in more bilateral agreements and a residual, if weak, interest in APEC’s ‘open regionalism’ agenda. Macro-level economic regionalization in East Asia proceeds through different overlapping micro-regional processes, yet this micro-regional integration is itself driven by globalization. Thus, we need to consider not only the relationship between the regional and the global but also the relationship between regions, albeit often differentiated by size and/or functions. In sum, the theory and practice of regionalism and regionalization is in a state of dynamic evolution. There are continuities in the contemporary study of these processes with first-wave theorizing, but there are also significant differences. Specifically the contemporary literature: 1 2 3

is much less state-centric; has a much greater recognition of the importance of the processes of politics and the role of non-state actors in these processes; recognizes the degree to which the idea of ‘region’ is as much socially constructed as it is economically determined.

These innovations represent a response to the manner in which regionalism, as both a quantitatively and qualitatively important factor in global politics, has developed over time since the first-wave theorists were writing. The increasing salience of regions has enhanced our understanding of these processes but, at the same time, made it difficult to raise the level of general explanatory ability – generalization being the hallmark of theorizing. In part, this is attributable to the dominance of the EU as the principal observable regional project in the post-Second World War period and the manner in which it has skewed the study of regional integration theory. Consequently, the evolution of other, invariably less formalized, processes of regionalism and regionalization in other parts of the world is theoretically under-specified. Hegemony, bilateral trade and monetary regionalism Hegemony To talk of regionalism without addressing the specific question of the role of the US is rather like a performance of Hamlet without the Prince. It is to miss the global context of contemporary regionalism. This is especially,

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but not solely, the case since the advent of the Bush administration and the policy changes emanating from the events of 11 September 2001. In what follows, I suggest a stronger degree of continuity rather than change in attitudes towards regionalism since 9/11, but argue that these trends have consolidated since that date. Quite clearly, US policy towards the regional agenda is more significantly shaped by its central security agenda than it was prior to 9/11. It is inevitable that the reassertion of the geo-security agenda over the geoeconomic agenda that prevailed in the 1990s, should lead to fundamental policy change. While keeping a sense of perspective, we should note that the principal contemporary trends are not substantially different to those that were developing prior to 9/11. Rather, subsequent policy responses from the US have strengthened these trends, especially in the Pacific. We have seen that: • •

• •

The growing malaise of APEC as the foremost regional construct has continued unabated. The growth of bilateral free trade areas (FTAs) or preferential trade agreements (PTAs) in the region was already strong and has strengthened. The development of an East Asian understanding of regionalism (embodied in the development of the ASEAN+3) continues. Closely linked to the above point, an East Asian interest in mitigating the prospects of further financial volatility at a regional level via the gradual development of policies promoting monetary regionalism has developed.

The defining issue in the development of these trends is not 9/11. Rather, it is the group of Asian financial crises of 1997–98. For most Asian states these crises, their aftermath and Asian responses to US policy in the period since then provide the most salient component of an explanation of current trends and policies in the region. Bilateral trade policy and regional theory While the rhetorical support for markets remains strong, the impact of politics on markets is never far away. And the growing interest in bilateral trade arrangements is determined by a number of factors other than US policy. The World Trade Organization (WTO) had not fared well since its inception and the unbalanced diet that is the Doha Round has proved indigestible in many parts of the world. But there can be little doubt about the influence of the growth of interest in bilateral preferential trading agreements (PTAs). This interest was (is) not simply a US phenomenon. But, if the Europeans started it, and other smaller and weaker states also


began to explore it, it has been the role of the US, as the strongest partner in any bilateral relationship, that has been disproportionately influential. On few things are economists and political scientists so agreed than that bilateral trade deals are sub-optimal and pose major threats to the multilateral trading system (Bhagwati 2002). This is especially so when trade agreements are used to advance non-trade specific issues, such as security policy. Actions, rather than rhetoric, suggest that the US since 9/11 has attached as much importance to its bilateral deals with a range of countries, including Chile, Australia, Singapore and Morocco, as it has to the conclusion of an acceptable Multilateral Trade Negotiations (MTN) round (see Higgott 2004). The Asian interest in bilateral agreements reflects a general appreciation of the success of GATT (General Agreement on Tariffs and Trade)/WTO in reducing tariffs and, albeit to a lesser extent, non-tariff barriers in the second half of the twentieth century. Thus the benefits of regional free trade agreements are much less significant than they were thought to be. Industry leaders in the region (de facto agents of market-led economic integration) are acutely aware of the degree to which manufacturing is now more global than regional. Building large, multi-member, regional trade blocs in an era of globalization is deemed less relevant. More specifically, bilateral trade arrangements – in many ways a defining feature of the regional political economy in the early twenty-first century – are felt to give regional policy elites greater control over national trade policies. This reflects the fear of Asian states that their influence over deliberations within the context of the WTO is not always as great as they would wish. As such, bilateral free trade areas are statements of sovereignty. While the US may see bilateral agreements as a way of bolstering or rewarding good partners in the fight against terrorism, East Asian leaders also see them as a useful policy tool with both extra-regional and interregional payoffs for the states concerned. The effects of this trend can be, at one and the same time, to enhance regional economic convergence in one area of activity, on the one hand, and yet to exacerbate regional economic divergence in another area of economic activity, on the other. At the end of 2003, East Asian states were involved in 41 state-to-state (actual and putative) bilateral FTA projects, with Singapore and Thailand the most active participants, and 23 states were involved in region-to-state agreements such as the ASEAN-China FTA (see Dent 2004). If bilateral economic cooperation in the trade domain is a fact of life in East Asia in the early years of the twenty-first century, the key issue for this paper is the degree to which it might enhance the regional project overall or detract from greater regional economic policy coordination and integration. This is clearly not an either/or situation. Elements of both enhanced cooperation and increased competition are present in the contemporary regional policy process. In a ‘structural argument’, bilateralism

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can bolster the economic foundations of the region with the prospect of enhanced cooperation at the regional level. It can provide a regional ‘lattice’ of technical and institutional arrangements to reinforce the regional project. This is an argument frequently advanced by states active in the FTA game (see Desker 2004). By contrast, a ‘process-led argument’ in favour of the recourse to bilateralism would suggest that it has the effect of enhancing the broader discourse on regional economic cooperation and integration. No state, it is argued, pursues just a bilateral or multilateral trade policy. The two arms can surely be mutually reinforcing. Bilateral activity should be seen as a complement to other initiatives such as the development of an ASEAN Economic Community and the ASEAN+3, both of which have different but complementary agendas and functions. This is a position advanced, for example, by Singapore and Thailand as part of their trade strategies. In sum, support for enhanced economic cooperation and integration at the regional level is a possible outcome of the trend towards bilateralism in East Asia, but it is not inevitable, and strong countervailing tendencies and outcomes are equally possible. We have little or nothing in the historical or scholarly armoury to make a strong prediction one way or the other at this stage. The risks may outweigh the opportunities. The degree to which the positive outcome might prevail will in part be determined by the success or failure of activities in other areas of the policy domain and of other putative economic initiatives, such as monetary cooperation, where the collective regional urge in East Asia is currently stronger. But the jury will remain out on the strength of these arguments for the foreseeable future. Opponents argue that, in fact, the increasing recourse to bilateral initiatives has the effect of undermining the wider regional projects in East Asia. Intellectual and technical capability and political will are finite resources that cannot be indefinitely sub-divided without diminishing their utility and effectiveness. At the ASEAN level, bilateral activities must inevitably be in competition for attention with attempts to upgrade the ASEAN FTA (AFTA) to the ASEAN Economic Community (AEC) by 2020 (see Hew and Soesastro 2003). A longer-term outcome of this competition in the trade domain could be increased consolidation of existing asymmetries, enhanced inter-state rivalry among regional neighbours at a more general level, and a diminution of the region’s ability to present a united front to other global actors in a range of other policy domains. Monetary regionalism and an East Asian Economic Community I have argued that the nascent nature of regional cooperation, when accompanied by the fear of being on the receiving end of asymmetrical agreements in times of low trust in the multilateral trading system, has seen governments developing bilateral strategies. More generally, East


Asian cooperation, in the economic (and, indeed, the security) domain and in the search for a new voice of Asian regionalism, remains problematic. The dialogue at the Asia Pacific level has faltered. APEC’s identity crisis persists, with the organization unable to decide if it is an economic or a security body. However, the regional dialogue has moved on dramatically since the time of the financial crises of 1997–98. The key issue here is how one defines region. It is the group of crises of the late 1990s that has contributed to the evolution of a new type of regionalism in Asia. Before the crises of the latter part of the 1990s, trade-led regionalism in the Asia-Pacific had been driven by the Caucasian members of APEC. Even prior to 9/11, Asian observers had increasingly evaluated APEC as a tool of American foreign policy. The resistance of Asian policy makers to a strengthened APEC was caused by their fear of American dominance (Kahler 2000: 568). They became increasingly critical of the lack of tangible benefits that APEC provided (Ravenhill 2001). The manner in which the US has treated APEC in the wake of 9/11 has confirmed these initial Asian perceptions (Higgott 2004). The debate about enhanced cooperation at the level of East Asia – writ small to mean ASEAN – continues with discussions about the development of an AEC as a hosting body to integrate the activities of AFTA, the ASEAN Framework Agreement on Services, and the ASEAN Investment Agreement. But it is at the level of East Asia – writ large to include ASEAN, China, Japan and South Korea – that the regional dialogue on how best to mitigate the kind of volatility experienced during the financial crises of 1997–98 has developed most rapidly. Notwithstanding the failed attempt to establish an Asian Monetary Fund (AMF) in 1998, the principle behind the proposal did not die. Evidence of an emergence of monetary regionalism is indeed to be found. By the end of 1999, the worst of the Asian crisis was over and East Asian policy circles once again addressed the topic of regional cooperation. The regular ASEAN summits were expanded by the participation of Japan, China and South Korea, the new body being called ASEAN+3 with the first East Asian Summit taking place in Kuala Lumpur in December 1997. Since then, steps in the search for a new monetary regionalism have been frequent and numerous. The most important of these have been the Chiang Mai swap initiative and, in April 2004, the proposed move from a bilateral to a regional common fund arrangement of some $100 billion on which any state might draw in the event of a financial crisis. The emerging regional (Manila) framework will offer a process of enhanced mutual, IMF-style surveillance and Asian-style ‘peer pressure’. In short, it represents a contribution to the regional institutional economic architecture that departs from previous models of regional cooperation in Asia. It is very much part of the wider exercise of soul searching that has

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been taking place both within ASEAN and between ASEAN and its other East Asian partners since the turn of the century. At a more exploratory level, the idea of an AMF continues to resurface as regional states seek ways to stabilize their currencies (see Dieter and Higgott 2003). Other important twenty-first-century initiatives emanating from this mode of thinking include the Asian Bond Fund initiative (ABF), proposed in June 2003, and the suggestion of a regional stock exchange, both of which have the aim of reducing the distances between the individual national markets and exchanges. The crucial point of these exploratory exercises is not their immediate significance. Nor should the difficulties of such policy coordination in the region be underestimated. Rather, I suggest that we would be naive to think that Asians will not continue to develop greater regional institutional mechanisms for the common management of financial questions. To see ASEAN+3 as but an exercise in extended conference diplomacy, reflecting weakness rather than strength, would be misleading. True, in the opening years of the twenty-first century, it is too early to see what kinds of institutional structures will inevitably be embedded in the region, but the range of interactions developing is unprecedented. ASEAN+3 has moved on from initial leadership meetings. Considerable deepening has taken place with regular ministerial meetings across most policy domains (economics and finance, agriculture, forestry, tourism, etc.) (see Stubbs 2002; Suzuki 2004; Thomas 2004). In T.J. Pempel’s perceptive view: A strikingly contradictory view of the East Asian region emerges. . . . [D]espite the overwhelming structural impediments to integration, East Asia has in recent years become considerably more interdependent, connected and cohesive. [It is] . . . a region that has developed an increasingly dense network of cross border cooperation, collaboration, interdependence and even formalized institutional integration. (Pempel 2004: 2) In keeping with earlier analysis (Higgott and Stubbs 1995), what we are seeing is a trend recently picked up by others (Bergsten 2000; Webber 2001; Rapkin 2001), namely, the emergence of a voice of region beyond that of the sub-regions – Southeast and Northeast Asia – but more restricted than that of the Pacific as a mega region. The Asian voice of region that is emerging in the global political economy is a new, ‘East Asian’ one. When looked at collectively, the processes in train actually represent a more systematic package of activities than would at first sight appear to be the case. The whole will be greater than the mere sum of its parts. The ASEAN+3 process is being institutionalized through the evolution of an overlapping, multidimensional process of regional conference diplomacy, strengthening – and indeed creating – links between the states of Northeast Asia and Southeast Asia. Whether the Asians will be successful


or not in their endeavours, there can be little doubt that the continued exploration of cooperation as a way to combat vulnerability is an established item on the regional policy agenda in the early twenty-first century and it demonstrates a marked contrast with the late twentieth century. If we consider APEC as the dominant regional initiative of that era, then during this period we saw the US being strongly proactive, Japan as a passive, reactive actor in the organization and China giving its support to the East Asian Economic Caucus (EAEC) initiative of the Malaysians rather than APEC. The AMF initiative of the late 1990s was initiated by the Japanese and met with resistance (albeit low key) from the Chinese and outright hostile rejection by the US. In the early twenty-first century the major regional agenda item is the attempt to develop enhanced monetary cooperation, especially since the Chiang Mai initiative, as the major exercise in regional cooperation in the twenty-first century. In this initiative we have, for the first time, a position where both the Japanese and the Chinese are strongly supportive of a regional project. While the US is opposed, it is not minded to develop strong countermeasures. China and Japan are not, it should be stressed, engaged in a concerted coordination of their foreign policies. Rather, we see a happy coincidence where both major powers recognize that the regional agenda for enhanced monetary policy coordination can be supported and advanced, comfortable in the knowledge that it is a positive sum, not a zero sum, game.

Conclusion: towards regulatory regionalism in the twenty-first century At a general level, I have argued that both the practice and theory of regionalism are undergoing a period of significant change. The key element of this is a shift from a first to a second wave of theorizing. The first wave was primarily statist and/or economistic; it was largely Europeaninfluenced and stressed intergovernmental bargains. The second phase is more complex, multidimensional, globalist and, notwithstanding the increased salience of security issues post 9/11, still primarily politicaleconomy focused. In the first wave, the ‘economic’ and the ‘political’ were largely treated as separate issue areas for investigation and action. In the second wave, politics and economics are more clearly linked and the state is joined by a series of other significant, non-state actors in both the theory and practice of regionalism. The relationship between state authority and market power is much fuzzier. By the time of the second wave, it had also become apparent that attempts to universalize theoretical endeavours about regionalism – especially in a US-driven social scientific sense in the political domain – had developed serious limitations. In the economic domain, the early Balassian model, based on a reading of the evolution of the EU, was

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similarly formulaic and also teleological, even as an explanation of the EU’s development. It no longer stands scrutiny in the context of globalization, where guarding against the volatility of the erratic mobility of capital is in many ways now a factor of as great, if not greater, regional concern than guaranteeing the openness of trade. Balassian theory pays insufficient attention to the possibility of different routes to, or different agendas for, regional cooperation. It is also too silent on the significance of socio-cultural factors – especially the role of identity in region building – to be relevant in an era of globalization. There is one further key distinction between current and old explanations for regional projects. Rather than building (or joining) regional arrangements to enhance independence from the global economy (a firstwave project), many developing states now see regionalism as a measure to ensure continued participation in the global economy. Thus, and by extension, the distinction between de facto and de jure regional activity also becomes more problematic in the second period. While markets are the key drivers of regionalization, state-led initiatives to enhance integration into the global economy lead to the pursuit of more strongly strategic regional policies. In this sense, the contemporary discussion in East Asia illustrates the differences between first- and second-wave thinking and offers us an alternative reading of regionalism in a wider global context. The glue of regionalism at the level of the Asia Pacific – embodied in APEC – has come unstuck since the time of the Asian financial crisis. Events post-9/11 have exacerbated this trend. However, this does not mean that there is no longer a debate over the future of regional cooperation. The East Asian conversation about regionalism was developing prior to 9/11 and indeed continues to do so. And while closer monetary cooperation is innovative and active in theory, it must inevitably remain problematic in practice until tested (see the chapter by Hamilton-Hart in this volume). By contrast, the discussion of PTAs with the US by many of the states of the region suggests that they are interested in positioning themselves on a firmer bilateral basis in their relations with the US. For most states of the region the relationship with the US remains the major bilateral relationship. For the smaller partners it is not an easy one. The Bush administration has been the most self-regarding US administration any post-colonial Asian leaders have known. Its regional posture is not noted for its nuances. Often failing to differentiate between individual states, it sees the East Asian region as a problematic partner. This is especially the case with Southeast Asia, to the intense irritation of the Singaporeans, Malaysians and Thais, all of whom have clamped down strongly on prospective terrorists. East Asia is a region of economic experimentation. Asian policy communities have learned that globalization and regionalization are not mutually exclusive activities but rather exist in a dialectical relationship.


Regionalism is not an alternative to globalization. Following this logic allows us to explain the emergence of a multiplicity of policy responses to recent economic issues in the Asia Pacific. These responses reflect, in part at least, Asian resistance to Western-driven models. Specifically, the financial crises of the late 1990s forced regional scholars and policy makers alike to examine not only their national economic policies but also their very understanding of regionalism. The regionalism we see emerging in the early twenty-first century is not the kind of regional cooperation that has a necessarily European intellectual pedigree. Rather it is what, following Kanishka Jayasuriya’s insightful analysis (2004), we might call the rise of a regulatory regionalism that links national and global understandings of regulation via the intermediary regional level. Effectively, regionalism is a transmission belt for global disciplines to the national level through the de-politicizing and softening process of the region in which regional policy coordination – evolving regional governance – becomes the ‘meso’ link between the national and the global. As a multi-level exercise it reflects three trends: 1

2

3

Regional policy coordination to mitigate risk is delegated to the state in order that states do not lose sovereign control. Indeed, there is a strong relationship between state form, the global economic and political orders and the nature of regional governance emerging at the meso level. This compromise is inevitable if the continuing tension between nationalism and regionalism in East Asia is not to jeopardize the cooperative endeavour. The meshing of multi-level processes of regulation to reinforce the connections between the international institutions (e.g. the IMF and the World Bank) and regional institutions such as the ADB and the emerging instruments of regulation developing in the context of monetary regionalism at the level of ASEAN+3, especially the ASEAN surveillance process (ASP). A way of transmitting internationally agreed codes that enforce market standards that tend to emanate, much more than sceptics would wish to concede, from the perceived best practice of international institutions such as the IMF (Manupipatpong 2002).

A significant point about contemporary regionalism in Asia is that the growing regulatory urge is not simply restricted to trade. Indeed, it is in the area of monetary regionalism that it is advancing most rapidly. The key to monetary regionalism is closer integration through common national ‘regulation’ rather than regional institution building. In discursive terms, ‘regional regulation’ carries fewer negative connotations for sovereignty and regime autonomy than ‘regional institution building’. Institution building throughout the pre-crisis days in East Asia carried with it the unwanted implication of European style ‘sovereignty-pooling’. Europe’s

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immediate past is not Asia’s immediate, or indeed long-term, future. The sooner theorists of region with a European interest come to terms with this the better. The development of a corpus of regulatory governance at the regional level in East Asia, rhetorically at least, carries none of the sovereignty-shedding baggage we associate with the European conversation.

Note 1

This paper is a much revised and updated version of Breslin and Higgott (2000). Thanks are offered to Professor Breslin for his cooperation on the earlier paper.

References Acharya, Amitav (1997) ‘Ideas, Identity and Institution Building: From ASEAN Way to the Asia Pacific Way’, The Pacific Review, 10: 2. –––– (2001) Constructing a Security Community in Southeast Asia: ASEAN and the Problem of Regional Order, London: Routledge. Balassa, Bela (1962) The Theory of Economic Integration, Homewood IL: Richard Irwin. Barnard, M. and Ravenhill, J. (1992) ‘Beyond Product Cycles and Flying Geese: Regionalisation, Hierarchy and Industrialisation in East Asia’, World Politics, 47: 2: 171–209. Bergsten, C. Fred (2000) ‘East Asian Regionalism: Towards a Tripartite World’, The Economist, 15 July. Bhagwati, Jagdish (2002) Free Trade Today, Princeton NJ: Princeton University Press. Breslin, Shaun and Higgott, Richard (2000) ‘Studying Regionalism: Old Lessons, New Lessons’, New Political Economy, 5: 3: 333–352. Coleman, William and Underhill, Geoffrey (eds) (1998) Regionalism and Global Economic Integration: Asia, Europe and the Americas, London: Routledge. Dent, Christopher (2004) The New Economic Bilateralism and Southeast Asia: Region Convergent or Region Divergent?, British International Studies Association, IPEG Papers in Global Political Economy, No. 7, April. Desker, Barrie (2004) ‘In Defence of FTAs: From Purity to Pragmatism in East Asia’, The Pacific Review, 17: 1: 3–26. Dieter, Heribert and Higgott, Richard (2003) ‘Exploring Alternative Theories of Economic Regionalism: From Trade to Finance in Asian Cooperation’, The Review of International Political Economy, 10: 3: 430–454. Fawcett, Louise and Hurrell, Andrew (eds) (1995) Regionalism in World Politics: Regional Organisation and International Order, Oxford: Oxford University Press. Gamble, Andrew and Payne, A. J. (eds) (1996) Regionalism and World Order, Basingstoke: Macmillan. Grugel, Jean, and Hout, Wil (eds) (1999) Regionalism across the North–South Divide: State Strategies and Globalisation, London: Routledge. Haas, Ernst (1956) The Uniting of Europe: Political Social and Economic Forces, 1950–57, Stanford CA: Stanford University Press. –––– (1964) Beyond the Nation-State: Functionalism and International Organisation, Stanford CA: Stanford University Press. –––– (1975) The Obsolescence of Regional Integration Theory, Berkeley CA: Institute for International Studies.


Harris, Stuart (2002) ‘Asian Multilateral Institutions and Their Response to the Asian Economic Crisis: Regional and Global Implications’, in Shaun Breslin, Christopher W. Hughes, Nicola Phillips and Ben Rosamond (eds) New Regionalism in the Global Political Economy: Theories and Cases, London: Routledge. Hay, C. and Rosamond, B. (2000) ‘Globalisation, European Integration and the Discursive Construction of Economic Imperatives’, European Journal of Public Policy, 9: 2: 147–167. Hew, Denis and Soesastro, Hadi (2003) ‘Realising the ASEAN Economic Community by 2020: ISEAS and ASEAN ISIS Approaches’, ASEAN Economic Bulletin, 20: 3. Higgott, Richard (1993) ‘International Political Economy’, in John Groom and Margot Light (eds) Contemporary International Relations Theory: A Guide to Theory, London: Pinter, 1994. –––– (1997) ‘de facto or De Jure Regionalism: The Double Discourse of Regionalisation in the Asia Pacific’, Global Society: Journal of Interdisciplinary International Relations, 11: 2: 165–183. –––– (1998a) ‘The Asian Financial Crisis: A Study in the Politics of Resentment’, New Political Economy, 3: 3: 33–56. –––– (1998b) ‘The International Political Economy of Regionalism: Europe and Asia Compared’, in William Coleman and Geoffrey Underhill (eds) Regionalism and Global Economic Integration: Asia, Europe and the Americas, London: Routledge. –––– (2004) ‘The “Securitisation” of U.S. Foreign Economic Policy in East Asia’, Critical Asian Studies, 36: 3: 425–444. –––– and Stubbs, Richard (1995) ‘Competing Conceptions of Economic Regionalism: APEC versus EAEC’, Review of International Political Economy, 2: 3. Hix, Simon (1994) ‘The Study of the European Community: The Challenge for Comparative Politics’, West European Politics, 17: 1. –––– (1999) The Political System of the European Union, Basingstoke: Macmillan. Hurrell, Andrew (1995) ‘Regionalism in Theoretical Perspective’, in Louise Fawcett and Andrew Hurrell (eds) Regionalism in World Politics: Regional Organisation and International Order, Oxford: Oxford University Press. Jayasuriya, Kanishka (ed.) (2004) Asian Regional Governance: Crisis and Change. London: Routledge. Kahler, Miles (2000) ‘Legalization as a Strategy: The Asia Pacific Case’, International Organization, 54: 3: 549–571. Katzenstein, Peter, Keohane, Robert O. and Krasner, Stephen (1998) ‘International Organization and the Study of World Politics’, International Organization, 52: 4. Lindberg, Leon (1966) The Political Dynamics of European Economic Integration, Stanford CA: Stanford University Press. Mansfield, E. D. and Milner, Helen (eds) (1997) The Political Economy of Regionalism. New York: Columbia University Press. Manupipatpong, W. (2002) ‘The ASEAN Surveillance Process and the East Asian Monetary Fund’, ASEAN Economic Bulletin, 19: 1: 114–115. Mattli, W. (1999) The Logic of Regional Integration, Cambridge: Cambridge University Press. Moravcsik, Andrew (1998) The Choice for Europe: Social Purpose and State Power from Messina to Maastricht, Ithaca NY: Cornell University Press. Nesadurai, Helen (2003) Globalisation, Domestic Politics and Regionalism: The ASEAN Free Trade Area, London: Routledge.

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Nye, Joseph (1968) ‘Comparative Regional Integration: Concepts and Measurement’, International Organization, 22: 4. –––– (1971) Peace in Parts: Integration and Conflict in International Organisations, Boston MA: Little Brown. Ohmae, Kenichi (1995) The End of the Nation State: The Rise of Regional Economies, New York: HarperCollins. Oman, Charles (1999) ‘Globalisation, Regionalisation and Inequality’, in Louise Fawcett and Andrew Hurrell (eds) Regionalism in World Politics: Regional Organisation and International Order, Oxford: Oxford University Press. Pempel, T. J. (2004) ‘Emerging Webs of Regional Connectedness’, in T. J. Pempel (ed.) Remapping East Asia: The Construction of a Region, Ithaca NY: Cornell University Press. Rapkin, David P. (2001) ‘The United States, Japan, and the Power to Block. The APEC and AMF Cases’, The Pacific Review, 14: 3: 373–410. Ravenhill, John (2001) APEC and the Construction of Pacific Rim Regionalism, Cambridge: Cambridge University Press. Rosamond, Ben (2000) Theories of European Integration, Basingstoke: Macmillan. Schmitter, Philippe (1971) ‘A Revised Theory of European Integration’, in Leon Lindberg and Stuart Scheingold (eds) Regional Integration: Theory and Research, Cambridge MA: Harvard University Press. Stubbs, Richard (2002) ‘ASEAN Plus Three: Emerging East Asian Regionalism’, Asian Survey, 42: 3: 440–455. Suzuki, Sanae (2004) East Asian Cooperation through Conference Diplomacy: Institutional Aspects of the ASEAN Plus Three (APT) Framework, Tokyo: Institute for Developing Economies, APEC Study Center, JETRO, Working Paper 03–04, No. 7. Thomas, Nick (2004) ‘An East Asian Economic Community: Multilateralism Beyond APEC’, paper presented at the Conference on Asia Pacific Economies: Multilateral versus Bilateral Relationships, Hong Kong, City University, 19–21 May. Tranholm-Mikkelsen, Jens (1991) ‘Neo-functionalism: Obstinate or Obsolete?’ Millennium: A Journal of International Studies, 20: 1. Verdun, Amy (2000) European Responses to Globalisation and Financial Market Liberalisation: Perceptions of Economic and Monetary Union in Britain, France and Germany, Basingstoke: Macmillan. Wallace, Helen (1996) ‘The Institutions of the EU: Experience and Experiments’, in Helen Wallace and William Wallace (eds) Policy-Making in the European Union, 3rd edn, Oxford: Oxford University Press. Wallace, William (1990) ‘Introduction: The Dynamics of European Integration’, in William Wallace (ed.) The Dynamics of European Integration, London: Pinter/Chatham House. Webb, Carole (1983) ‘Theoretical Approaches and Problems’, in Helen Wallace and William Wallace (eds) Policy-Making in the European Union, 2nd edn, Chichester: John Wiley. Webber, Douglas (2001) ‘Two Funerals and a Wedding? The Ups and Downs of Regionalism in East Asia and the Asia Pacific after the Asian Financial Crisis’, The Pacific Review, 14: 3: 339–372.

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Part II

Leadership and power in regional integration

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3

France and Germany The evolution of a European partnership Ulrike Guérot

Introduction France and Germany are each other’s largest and most important neighbours. Relations between the two countries have become known as the ‘tandem’ of European integration. Today, they stand as an example for Germany’s relations with its other neighbours, such as Poland. Nonetheless, friendship and cooperation aside, one should not forget that, over the years, the Franco-German relationship has witnessed a significant degree of tension from time to time. The relationship between the two countries has long been characterized by various dichotomies. The Atlantic-oriented Germany and the autonomous France have had consistently diverging opinions on relations with the United States, making the ‘threesome’ Bonn/Berlin–Paris–Washington a difficult one. Furthermore, Germany and France have often found themselves on opposite sides of the spectrum on many inner-European issues, such as Great Britain’s EU membership, agricultural policy, the monetary union, the European constitution and the EU’s eastern enlargement. The French preference for an intergovernmental EU and the country’s orientation towards the south have traditionally stood in stark contrast to the German vision of a federally organized, northeastern-oriented union. In light of these circumstances, the Franco-German role as Europe’s motor is particularly remarkable. Traditionally, once France and Germany agree a compromise, it will generally become the basis for a European accord. Simultaneously, however, this role often proves to be problematic. Due to the blocking capacity of both countries, Europe cannot move forward without Franco-German agreement. Yet, if the motor works, Germany and France often find themselves criticized by other European member states for being ‘dictators’ or forming a ‘superpower condominium’. Furthermore, the momentum provided to the integration process by Franco-German cooperation has declined in the enlarged Europe since 1989. While Franco-German consent was, for a long time, both a necessary and sufficient condition for the progression of European integration,

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today it has become merely a necessary condition. On the one hand, the ‘big’ Europe needs at least one additional partner, such as Great Britain. On the other hand, Germany and France alone continue to constitute the ‘critical mass’ within the Union, as both countries have a tremendous deadlocking capacity. Is the partnership destined to be lasting? Has it come to terms with the geo-strategic changes of 1989 and is it once again the creative engineer of Europe? What does the inner dynamic of the duo look like, in particular with regard to the changing transatlantic relationship post-9/11? Is the partnership based on equality or is a disoriented Germany following a France that, once again, finds itself inspired by neo-Gaullist objectives? In order to answer these questions, one must look at the development of the Franco-German relationship across time. The first part of this chapter therefore examines the characteristics of the relationship between 1945 and 1989 and the structural impact of the German reunification. The next part describes the deterioration of the partnership during the 1990s, while the final part analyses today’s chances for a revitalization of the relationship. Particular attention will be paid to the Franco-German objectives for a European constitution, the changes in the transatlantic relationship brought forth by the crisis over Iraq and the idea of a ‘core Europe’.

Germany and France between 1945 and 1989 Parameters of the Franco-German relationship Naturally, the French conception of being – at least partially – politically superior to Germany had a significant influence on French self-confidence during the post-Second World War period. The initial post-war French policy of démorcellement (division) had been aimed at keeping Germany contained. Stanley Hoffmann (Hoffmann 1976) describes this équilibre du désequilibre with France as the political giant and economic dwarf and German as the economic giant and political dwarf as the defining element of the FrancoGerman relationship and of German policy towards France during this period. Germany deliberately founded its foreign policy and identity on the transatlantic relationship and European integration. Germany therefore viewed the French Gaullist affectation and its desire for autonomy and influence in foreign affairs as problematic. The implicit French plan to use Europe as a mechanism for conducting a French global policy and the country’s blockade policy on EU issues (e.g. de Gaulle’s ‘empty seat policy’ in 1966 and the French objection to British EU membership) caused discontent on the German side. France consistently tried to tie Germany into an autonomous European security and defence policy as a counterweight to the United States. For Germany, this essentially signified a political balancing act. On the

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one hand, France was Germany’s most important neighbour, and, consequently, reconciliation and cooperation with France were of vital importance to Germany. On the other hand, the Germans would not bow to the French ambitions with regard to Europe’s security and defence policy. In 1955, after the French proposition to create a European Defence Community (EDC) failed, Germany chose NATO and refused to consider the 1959–60 French ‘Fouchet Plan’ on European security. The German Bundestag undermined the famous Elysée Treaty that essentially was meant as a Franco-German security union by adding a transatlantic preamble to the treaty at the last minute. This step meant that the actual French political goal of bringing Germany to rely on France rather than on the US in security matters was not achieved. Consequently, the French plans for an autonomous European security and defence policy were laid to rest for several decades until the fall of the Berlin Wall and the subsequent geo-strategic changes, which will be discussed in more detail below. German reunification and its consequences German reunification in 1989–90 ended the fruitful post-Second World War asymmetry of the Franco-German relationship. Precisely for this reason, France was intimidated by it. For France, reunification meant the prospect of both an ever larger and stronger German economy and an increase in German political power. All the parameters that had defined the Franco-German relationship for more than 40 years were suddenly being called into question: France’s assistance in helping Germany regain international recognition, for example, as well as its offer to give Germany additional security support against the Soviet threat (Adenauer and de Gaulle 1994). Would Germany still need France? Would it stay European? Germany was able to even out these differences by resolutely and definitively committing itself to the continuation of the European integration process. At the European Council meeting in Strasbourg in December 1989, Germany voted for the immediate convocation of two intergovernmental conferences. Of these two conferences, the first was intended to lay the legal foundations for the creation of a political union, the second to negotiate the terms of an Economic and Monetary Union (EMU). Germany’s reconfirmed commitment to the cause of European integration did not suffice, however, to iron out all problems between the two states. In an effort to prevent Germany from acting as a ‘lawyer’ for Eastern Europe, France thwarted German support for opening EU membership to transitional states with its own initiative. In 1990, Mitterrand proposed the creation of a ‘European Confederation’ that would tie the Central and Eastern European states to the Union in a sort of special relationship, but would fall short of enabling their accession into the EU.

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This example underlines that Germany and France alike struggled to develop a common geo-strategic perspective for Europe after 1989. In a way, the 1992 Treaty of Maastricht was perhaps the last ‘historic moment’, in which the farsightedness of the central actors, Helmut Kohl, Jacques Delors and François Mitterrand, was able to unify the expanding EU and commit it to a path towards integration.

The 1990s and the gradual erosion of FrancoGerman relations Tensions surrounding the realization of Economic and Monetary Union Time and again, former chancellor Helmut Kohl underlined that the monetary union should serve as an anchor that would guarantee the development of a European Germany by making European integration inevitable. However, this prototype for the European integration project was also the cause of Franco-German tension throughout most of the 1990s (Aeschimann and Riché 1996). The reason for this conflict lay in the diametrically opposed German and French conceptions of European economic policy. For Germany, monetary union was necessary for economic reasons because Germany’s – or rather the Deutsche Mark’s – role as the anchor within the European Monetary System (EMS) had become too difficult to sustain towards the end of the 1980s. Some 22 per cent of global currency reserves were in Deutsche Marks, but the German economy held only 4 per cent of worldwide production. This discrepancy between the monetary significance of the Deutsche Mark, on the one hand, and its economic importance, on the other, led to an increased revaluation pressure on the German currency in the late 1980s, which had to be compensated for domestically through a policy of wage moderation (Hefeker 1997). France, for its part, needed the monetary union for economic reasons because it had tied itself to the Deutsche Mark and the German monetary targets of the Bundesbank as part of its franc fort (strong franc) policy. The only chance to escape this monetary asymmetry lay in the creation of a federally organized European Central Bank (ECB), in which France would have a voice and be on equal footing with Germany. Despite this obvious win-win situation, the monetary union caused significant misunderstandings and disagreements between Germany and France from 1992 until 1998 (see Guérot 1997). Some aftershocks of this discussion still persist today with regard to the configuration of and adherence to the Stability and Growth Pact. The French continue to reject the rigidity of the pact, arguing that it is pro-cyclical (Financial Times Deutschland 2002).


With regard to the monetary union, the French have perceived themselves as being under German command from the start. The Treaty of Maastricht had modelled the statutes of the ECB almost identically after those of the German Bundesbank: the ECB went to Frankfurt, a German initiative changed the common currency’s name from ‘ecu’ to ‘euro’, and the Stability Pact – viewed by the French as a German demand – was created at the EU summit in Dublin in December 1996. In addition, Germany started an intense debate on meticulous adherence to the deficit criteria, which had been set at 3 per cent of the gross domestic product (GDP), a mark impossible for France to meet during the mid-1990s. It hence comes as no surprise that Lionel Jospin was able to win the 1997 parliamentary elections with the slogan ‘L’Euro oui, mais pas comme ça’ (‘Yes to the euro, but not in this form’) (Sapin 1997). Inevitably, the French perception was different. While Germany viewed the pact as an important prerequisite for monetary stability (‘Der Euro: stark wie die Mark’ – ‘A euro as strong as the Deutsche Mark’), France saw it as monetary rigidity that would cost the already weakened market additional jobs (‘Maastricht tue l’emploi’ – ‘Maastricht kills jobs’). In July 1997, the new French government under Jospin refused to sign the Treaty of Amsterdam on the institutional reform of the EU unless Germany agreed to a pact on employment and growth. Franco-German relations had seldom been more aggressive in tone than during the bilateral meeting in Poitiers in June 1997, one week prior to the European Council meeting in Amsterdam. The year 1997 must therefore be characterized as the turning point in Franco-German relations. The amicable rhetoric that had hitherto characterized the Kohl years in spite of significant tensions was over. Gerhard Schröder’s election as chancellor in 1998 then brought a whole new form of discord. One faux pas seemed to follow the next. Schröder’s article in the summer 1998 edition of Politique Internationale, in which he described the euro as a premature and abstract idea, caused a great uproar in France (Schröder 1998). France feared that Germany would pull out of the monetary agreements at the last minute. Schröder’s decision not to take part in the French commemoration of the Battle of Verdun on 11 November 1998 became an act of unanticipated symbolic importance. Furthermore, France was wary of Schröder’s talk of a new German foreign policy that would be free from its burden of the past. Finally, Schröder’s goal of creating a Paris–London–Berlin axis meant that the Franco-German relationship was no longer to be as exclusive as it had been and caused France to feel somewhat neglected. This French sentiment was reinforced by the fact that Schröder and Tony Blair, the UK’s prime minister, drafted a paper on European economic policy and the ‘Third Way’ in the summer of 1999, without first informing the French government (Blair and Schröder 1999).

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Difficulties over foreign, security and defence policy Not only the monetary union, but also the new definition of a European Security and Defence Policy (ESDP) created problems between Germany and France following the changes of 1989. For both countries, the development of ESDP or a Common Foreign and Security Policy (CFSP) continues to be inseparably linked to the question of NATO’s role in the post-1989 Europe. Franco-German differences surfaced as early as the beginning of the 1990s and essentially were related to the question of how autonomous the new, large, unified Europe should be vis-à-vis the United States on defence and security issues (Bozo 1998). From the French point of view, the Eurocorps, which had been founded in 1992, was to become a security and defence column outside NATO, whereas the Germans wanted it incorporated into NATO structures. While French diplomacy emphasized autonomy and began to question the relevance and future role of NATO after the end of the cold war, Germany advocated a strong role for NATO in Europe and sought to avoid duplication of NATO structures within the European security system (Gordon 1997–98). During the course of the war in Bosnia, France was forced to recognize that Europe still needed the Americans and NATO and it began to gradually distance itself from demands for an independent ESDP structure outside NATO. During the second half of the 1990s, Franco-German foreign and defence policy cooperation increased. It was evident, however, that significant steps forward could not be achieved by the Franco-German pair alone, but could only be made in cooperation with London. Once the FrancoBritish Declaration of Saint Malo had been signed in December 1998, CFSP/ESDP gained momentum. As a result of German insistence at the 1999 European Council in Cologne, the Council decided to appoint a High Representative of the CFSP. The Treaty of Nice in December 2000 brought about institutional improvements for ESDP, such as the creation of a Political and Security Committee (PSC), and confirmed the Helsinki EU summit ‘headline goals’ that stipulated the creation of a European rapid reaction force with 60,000 troops by the year 2003. Financing the EU’s eastern enlargement Aside from the EMU and CFSP/ESDP, the EU budget was also a cause for disagreement between Germany and France during the 1990s. From the start, France objected to burdening the EU budget with the costs of eastern enlargement, which had been agreed in principle in 1992. France viewed enlargement as a German goal, for which it was not willing to pay. At the EU summit in Berlin in the spring of 1999, Germany and France were unable to reach agreement on the Common Agricultural Policy


(CAP). Germany believed that the CAP should be partially renationalized in order to limit the CAP budget. The rationale for this position was that the cost of the CAP would explode if all candidate states were to enter the CAP at the current subsidization conditions. France, however, refused to agree to any form of CAP reform. The outcome was an EU financial package (‘Agenda 2000’), in which the CAP essentially remained unchanged, and the calculations for additional expenditures were made as though the candidate states would not gain access to subsidies following accession. This decision proved to be politically unfeasible, since the candidate countries refused to be treated as ‘second-class citizens’ during the final phases of the accession negotiations (Guérot 2002). The question of how to finance eastern enlargement remained largely unresolved and thus increasingly became the stumbling block on the road towards enlargement. Against strong German opposition, France tried explicitly to undermine – or at least delay – enlargement. When the Commission presented its progress reports in November 2001, in which ten candidate states were declared in accordance with the convergence criteria, French foreign minister Hubert Védrine proposed a sort of ‘Big Bang’, which would grant all 12 Helsinki candidate countries – including Romania and Bulgaria – EU membership (Védrine 2002). Védrine accused the Commission of having adjusted Poland’s economic data in order to add political force to Poland’s accession. It was evident that France still felt inclined to say no to enlargement (Leparmentier 2001). During the final stage of negotiations, Germany pushed the philosophy of ‘no phasing in without phasing out’. This meant that the accession states could be integrated into the CAP under the condition that the subsidies would be reduced linearly for all 25 member states. A FrancoGerman compromise was reached on 24–25 October 2002, immediately prior to the EU summit due to settle the enlargement issue. This compromise foresaw the freezing of agricultural expenditures at the 2006 level, with the exception of a 1 per cent inflationary adjustment. Since the new member states would receive funds following enlargement, all member states would have to prepare for lower subsidies in the future (Lippert 2003). The roof for expenditures was raised somewhat to approximately 40 billion euros as a result of Polish political pressure at the Copenhagen summit. Without a doubt, this result must be regarded as a success for France and Germany. Neither country had let the greatest historic and political challenge of the Union (the eastern enlargement project) fail due to concerns over agricultural policies. In the end, both countries were successful: Jacques Chirac was able to comfort his farmers with the fact that things would remain unchanged until 2005, and Gerhard Schröder was able to promise that the German net burden would not rise too much with enlargement, even though Germany had failed to achieve budgetary neutrality (Weise 1997). The compromise is praiseworthy

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because it prevented a delay of the enlargement process. The FrancoGerman breakthrough was the beginning of new, constructive cooperation between the two countries. Germany, France and the political union In addition to differences regarding the CFSP/ESDP, the EMU and the budget, the discussion on the political unification of Europe also placed a burden on the Franco-German relationship time and again throughout the 1990s. In September 1994, the Christian Democrats’ parliamentary group presented a paper with the title ‘Thoughts on European policy’ that basically proposed a federalization of the EU. The main element of the paper was the transformation of the Commission into a European government, with France and Germany leading the way. This idea of a ‘core Europe’, which in the meantime has reappeared on the agenda, was met with discontent in many of the countries that had not been named, such as Italy. France too reacted with scepticism to the proposal. At the time, France rejected the idea of a stronger Commission and preferred strengthening the intergovernmental component of the EU, the European Council. Furthermore, France did not have much domestic leeway for institutional reform of the EU. The French referendum on the Treaty of Maastricht in 1992 had created a deep European policy divide within the French parties and public, which meant that steps towards further integration would have to be taken carefully. Given Franco-German differences on these issues, it was not expected that any great impulse would result from the Treaty of Amsterdam. The Treaty of Amsterdam failed to solve the three main questions: (1) weighting of votes in the European Council; (2) expansion of qualified majority voting; and (3) reduction of the number of European Commissioners. Consequently, the Treaty of Amsterdam remained a failed opportunity for far-reaching reform. Instead, it merely led to a slight improvement of the European Parliament’s rights. It was a speech by German foreign minister Joschka Fischer in May 2000 that gave the impetus for a new discussion (Fischer 2000: 100). In his speech, Fischer once again proposed a federalization of the EU, which could be carried out, if not by all 15 member states, then by a ‘pioneer group’. Fischer’s speech contained other elements aimed at pleasing the French, such as the suggestion to create a new legislative body in which the national parliaments would be represented. The French reaction to Fischer’s speech came in the form of two constitutional proposals, one each from two right-of-centre parties, the more pro-European UDF (Union pour la Démocratie Française) and the more Euro-sceptical RPR (Rassemblement Pour la République Française), both of which, however, touched on only very few of Fischer’s ideas (UDF 2000; RPR 2000). In fact, the Gaullist RPR’s proposal clearly advocated


further intergovernmentalization of the Union. Germany and France also had very different conceptions of the European Council’s role. For precisely this reason, the question of vote distribution in the Council became the crux of the Franco-German debate prior to the Treaty of Nice. Germany demanded more votes in the Council to take account of its larger population. Intent on institutional symmetry with Germany, France rejected this request, arguing that Germany had already received more seats in the European Parliament in 1992 to compensate for its large population and that equality of votes had to be maintained in order to make the ‘tandem’ of the two countries function for Europe. Thus, an issue that had originated as a minor detail quickly turned into a major rift. France was unwilling to yield under any circumstances. The entire Nice Summit in December 2000 was overshadowed by this question, and, ultimately, hardly any of the pressing institutional questions could be solved satisfactorily (Guérot 2001). In the end, France prevailed against the objections of nearly all of the member states, having turned the issue of voting parity with Germany into a question of national survival. Overall, the Treaty of Nice constituted a bitter political failure for French diplomacy and, worse, a crisis for Europe, since none of the core institutional questions had been solved (Heisbourg 2000). The EU remained institutionally unprepared for eastern enlargement. Furthermore, the strain that the summit had put on the Franco-German relationship had certain people talking of the ‘End of a Myth’ (Ende eines Mythos) and a ‘Comedy of Friendship’ (Komödie der Freundschaft) (Süddeutsche Zeitung 2001a and 2001b). The Franco-German couple had failed in Nice, taking the rest of Europe with it on its downward spiral.

The Franco-German relationship revitalized: what prospects for the future? France and Germany in the Constitutional Convention After the shock of Nice, the regular high-level consultations held according to the Blaesheim agreement had a soothing effect on the damaged bilateral relationship. Blaesheim, the name of a little village in Alsace, was the place where French and German leaders met for the first time after the disaster at Nice and decided to hold, as a kind of confidence-building measure, meetings of the heads of government and foreign ministers every six weeks to anticipate and mediate forthcoming conflicts. The shock of Nice was deep, but it had also brought France and Germany to realize that they needed to work closer and better together if they wanted to prevent the European Union from descending into crisis and deadlock. It was time for round two of the discussion on a European constitution. In the debate that had been initiated by Fischer’s Humboldt speech

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back in 2000 as well as by contributions coming from the German president, Johannes Rau, Tony Blair and others, Franco-German positions were once again at odds with each other (Rau 2000; Blair 2000). One reason for this tension was the French cohabitation that left the French administration torn between president Jacques Chirac and prime minister Lionel Jospin and on the defensive with regard to European policy. It was not until May 2001 that Jospin responded to Fischer’s proposals in a speech in which he opened a new rift between the two countries ( Jospin 2001). Jospin emphasized the importance of clarifying the essence of European integration (‘What is our common goal in Europe?’) before addressing questions concerning the structure of the European institutions. With this statement, France reacted anxiously to the constitutional proposals of both major German parties, the SPD (Sozialdemokratische Partei Deutschlands (Social Democratic Party)) and the CDU (ChristlichDemokratische Union (Christian Democratic Union)), which it viewed as aiming at a sort of ‘renationalization’ and as therefore a threat to common policies, in particular the CAP (SPD 2001; Schäuble and Bocklet 2001). Nonetheless, Germany and France were able to find enough common ground to issue a joint declaration at the bilateral summit in Nantes in November 2001, calling for the implementation of a Constitutional Convention (Internationale Politik 2002). Further joint declarations followed during the EU Laeken Summit in December 2001, eventually leading the Franco-German initiative to success. In Laeken, the European heads of state and government agreed to create a Constitutional Convention, which began its work in February 2002. The Franco-German engine, however, did not return to action until the end of the year. The starting point for new progress was the aforementioned compromise on the cost of eastern enlargement that was reached at the EU summit in Brussels in October 2002. With this compromise, the last hurdles on the road to eastern enlargement had been overcome and Germany and France were finally able to turn their full attention towards the resolution of the institutional issues. It was the French foreign minister Dominique de Villepin who opened the door for rapprochement by advocating both a stronger European Parliament and Commission for the first time in French history (de Villepin 2002). Up until then, Germany had stood alone in its fight for a more powerful and efficient Commission. The resolution of this issue was also complicated by the fact that while small member states supported the idea of an efficient Commission in principle, they were in practice unwilling to give up their own commissioner. This stance made the German efforts for a more efficient Commission extremely difficult. Nonetheless, the discussion over these issues was energized by the impending fortieth anniversary of the Elysée Treaty on 22 January 2003. The symbolic importance of this date led Germany and France to issue


four joint proposals for the Constitutional Convention. These suggestions were for: (1) the common security and defence policy; (2) justice and home affairs policy; (3) economic governance in the EU; and (4) an EU dual presidency (a Council president and a Commission president elected by the European Parliament) (European Convention 2003; French Ministry of Foreign Affairs 2002). These four suggestions gave the discussion on the political leadership of the Union a new impulse. Based on a compromise between two seemingly incompatible perceptions of Europe’s future, the joint initiative must be seen as a masterpiece of Franco-German diplomacy and a prime example of the two countries’ role as the European motor. France reluctantly accepted a stronger Commission and a parliamentarization of the EU’s political system by giving the European Parliament the power to elect the Commission president. At the same time, Germany accepted a permanent Council president, who would serve for several years. This idea had already been sketched out at an earlier stage by Tony Blair and Jose Maria Aznar, the Spanish Prime Minister, who had suggested in May 2002 to do away with the system of rotating presidencies (Blair and Aznar 2002). Even though Schröder had already toyed with this proposal, it did not meet Fischer’s expectations. In the end, the result can be regarded as a compromise that strengthens both the federal and intergovernmental elements of the European structures and therefore does not greatly change the EU’s existing institutional balance. The main problem affecting Europe and FrancoGerman cooperation today is not so much the issue of reform of the EU’s institutions but rather relations between the EU and the US. On this issue, Franco-German behaviour has mattered a lot in recent times. The Iraq crisis and its implications for transatlantic relations It was above all the transatlantic crisis over the war in Iraq that brought the two countries closer together than ever. On the occasion of the fortieth anniversary of the Elysée Treaty, Germany and France issued a joint statement in which they declared their opposition to a war in Iraq. With unprecedented forcefulness, the two countries rejected war as a last resort, with France taking a particularly harsh stance on the issue. Previously, France had not excluded military intervention as a possibility if the weapons inspections should fail. In fact, Chirac had spoken in an interview of a ‘two-step approach’ – that is, a second UN (United Nations) resolution (New York Times 2002). Subsequently, however, the French increasingly threatened to block a second resolution in the UN Security Council. This, in turn, facilitated the development of an ‘anti-war alliance’, in which France took the leading role and in which Russia and a number of other states joined.

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In a way, France had saved Germany from the isolated and inflexible position on the Iraq issue that chancellor Schröder had adopted during the German election campaign in 2002, but this would have unanticipated consequences. Although it had perhaps not been their intention, France and Germany had given the impression that they were speaking for Europe. Only days after the Franco-German statement, eight European states published a letter declaring their solidarity with the United States in a sort of surprise coup, which led US Defense Secretary Donald Rumsfeld to make his (wrong, but) famous statement on ‘old’ and ‘new’ Europe (Wall Street Journal Europe 2003). Europe was deeply divided on the Iraq issue and failed to find a common position at an extraordinary summit on 17 February 2003. As early as November 2002, Germany and France had drafted a joint initiative on the European Security and Defence Policy (ESDP) for the Constitutional Convention. The proposal foresaw the development of ESDP into a European Security and Defence Union (ESDU). According to the Franco-German plan, ESDP should be opened for increased cooperation by enabling a group of states to take the initiative under the EU/ESDP without being blocked by other states. In order to achieve closer cooperation, the number of states in the Commission, which was set at half of the EU member states plus one in the Treaty of Nice, was to be reduced (on this issue, see Fabius 2003). The Franco-German initiative was received with some scepticism at the convention, in part due to the fact that the Iraq crisis demonstrated how divided Europe remained with regard to security and defence issues. But as a result of the FrancoGerman proposal, the Belgian government convened an extraordinary summit in April 2003 to discuss European security and defence policy. Known as the ‘Chocolate Summit’, the meeting, far from being successful, merely served to expose the isolation of France and Germany within Europe on this question (Grant and Guérot 2003). The astonishing aspect of the Franco-German positioning on the Iraq issue was that, for the first time in its European history, Germany took a clear stance against the United States, sharply deviating from its traditional role as a sort of mediator between France and the United States (Neue Zürcher Zeitung 2003). While transatlantic relations and European integration had always been two sides of the same coin, Germany suddenly found itself in the difficult position of having to choose between France and the United States (see, on the changing foundations of German foreign policy, Schröder 2003). It is impossible to overlook the neo-Gaullist tone in this discussion, which was only dissimulated behind the façade of the Iraq debate. In reality, the discussion concerned the power and leadership role of the United States in world politics and the French desire to constrain it. France was thus able to revitalize the idea of the European Union as a ‘counterweight’ to the United States. This debate triggered a huge and ongoing discussion about Europe’s relations with the United


States. Probably no question is more debated than the one of whether Europe can or should assume a ‘Euro-Gaullist’ stance or whether – and under which conditions – it can remain ‘Euro-atlanticist’ (for an overview of this discussion, see Garton Ash 2004). This debate is framed by the overall discussion about the US and Europe drifting apart and developing different foreign policy styles, the former preferring ‘hard power’ and the latter ‘soft power’, following the stereotypes outlined by Kagan in his book about (the American) ‘Mars’ and (the European) ‘Venus’ (Kagan 2003). In this discussion, France is the leader and Germany the follower. The German position vis-à-vis France was and is still weak, and Germany is unable to assert successfully its own transatlantic views. There is a risk that Germany might be squeezed between its transatlantic past and its (new) inclination for more neo-Gaullist thinking. It is thus possible that the Iraq crisis will herald the emergence of a new, highly bizarre dynamic in Franco-German relations, in which the ‘tandem’ would not unite, but rather split, the EU. The Franco-German federation and a core Europe: a step forward or backward? Without doubt, the Iraq crisis was also the catalyst for a renaissance of the ‘core Europe’ idea. At the same time as France and Germany were positioning themselves against the United States on the Iraq issue, several articles appeared, demanding even closer cooperation between Germany and France, which together should form the nucleus for a core Europe (Klau 2003). Politically, this closer cooperation manifested itself in the joint declaration on the fortieth anniversary of the Elysée Treaty. An important element of this declaration was the intention to increase Franco-German cooperation at the governmental level. Henceforth, French ministers were permitted to participate in German cabinet meetings and vice versa. Furthermore, a permanent Franco-German General Secretariat was created. All of these proposals were far-reaching. Other proposals include increased cooperation on security and defence issues through the interoperability of German and French troops, joint commando structures and a common armament policy. However, at this point, Franco-German cooperation needs to be put in the broader transatlantic context. In May 2003, two philosophers, Jürgen Habermas and Jacques Derrida, published a common article in which they claimed that Europe was being ‘reborn’, basically around the FrancoGerman position on the Iraq war and more or less in opposition to the United States, and spelled out six major differences that separated the United States and Europe (Habermas and Derrida 2003). But this programme did not win very much backing. Rather, the pendulum began to swing back again in the opposite direction. After Bush’s re-election as US president in November 2004, Germany grew much more reluctant to

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sit exclusively with France. Germany certainly shares the conviction that Europe should be more assertive in its own foreign policy but does not buy any longer into French ‘counterweight’ ideas. Germany knows too well that the future of Europe depends on its ability to balance out Paris and Washington – a déjà-vu pattern in 40 years of Franco-German cooperation. It is in forming the glue between Paris and Washington, not by forming a ‘core’ with France against the US, that Germany will construct Europe (Guérot 2003). One of the most important questions in this context remains the future relationship between the EU and the United States. If France and Germany isolate themselves from the rest of Europe on this issue, the EU in its current form has little chance of survival. A ‘core Europe’ can be founded neither on anti-Americanism nor on a Europe that is to be built up against the United States. In February 2004, German foreign minister Joschka Fischer actually buried the idea of a ‘core Europe’ in an interview, calling instead for a geo-strategic conception of Europe and its neighbourhood (Fischer 2004). Only a whole and united Europe – not just parts of it – would be strong. This does not exclude various ‘enhanced cooperations’ of different countries in specific policy areas, through which some EU member states would integrate more quickly than others, but it does rule out a clear-cut ‘hardcore’ of member states (Grabbe and Guérot 2004). In this context, Fischer pleaded strongly for Turkish membership within the EU, for the EU could only develop to be a ‘global actor’ with Turkey on board. France certainly buys the idea of European power projection. But it is much less enthusiastic about further enlargement of the EU. At least in respect of its public opinion, it is strongly opposed to Turkish EU membership, let alone that of other countries even further eastwards (Goulard 2004). However, it is dawning on some in France that a ‘core Europe’ might be France’s ‘last illusion’ or chance to keep its old influence, as France risks becoming marginalized in an ever bigger union (Leparmentier 2004). The struggle about the future borders of the Union and about how to shape a European geo-strategy for the continent’s neighborhood eastwards of the EU, ranging from Ukraine down to the Black Sea and the Caucasian area, might therefore perhaps be the next topic of conflict between France and Germany, however good the relationship seemed to have become again since 2002.

Conclusions Three dates stand out in recent European history as moments of geopolitical transformation: the fall of the Berlin Wall in 1989; the attack on the World Trade Center on 11 September 2001; and the 2003 war in Iraq. These same dates have also greatly impacted the Franco-German relationship. In today’s enlarged Europe, this relationship can no longer play the same role it did between 1957 and 1989. The situation is complex, since Germany and France still constitute the ‘critical mass’ for progress


in Europe. Nothing gets done in Europe against the two of them. But new ad hoc coalitions among various EU member states, in particular in Eastern Europe, are becoming increasingly common. Increasingly, the FrancoGerman ‘tandem’ needs to be enlarged, especially in foreign and security policy. There is no credible European foreign and security policy if France, Germany and the UK are not united. If they are, then the EU has real leadership, as the initiative of the so-called ‘Big Three’ on the issue of Iran’s nuclear programme showed. The credibility of exclusively FrancoGerman leadership in the EU is also at stake, since Franco-German cooperation has been dysfunctional in the recent past and has more often been resented as being directed ‘against’ the others than appreciated for paving the way for all member states to proceed together. The resentment in Eastern Europe is particularly strong – Jacques Chirac’s remarks in the middle of the Iraq crisis that these countries had missed an opportunity to ‘shut up’ did not help to create confidence. Likewise, France and Germany cannot pretend to be the ‘master-pupils’ of European integration if they both fail to comply with existing European policy or law, as was the case when they failed to meet the criteria for budget deficits contained in the Stability Pact. Leadership also requires moral integrity. The crucial issue confronting Europe today is how to deal with the EU’s neighbours in the future. The issues of ‘enlargement after the enlargement’, which involve the potential EU accession of Turkey and Croatia and possibly also Ukraine and Moldova, will have to be addressed in the near future. If a Europe with greater foreign policy making powers is indeed the goal, these geo-strategic questions will have to be answered – and in accordance with the US. Germany seems more ready to address them than France. But the times have also changed since the war against Iraq. The new rift with the US in the aftermath of the war brought closer together not only France and Germany but also European public opinion, which broadly stood on the Franco-German side against the war and claims more assertiveness for Europe in world politics (Transatlantic Trends 2004). Much will depend on the new strategy towards Europe of the second Bush administration. The more some parts of the political spectrum of the United States openly want to torpedo European integration (Cimbalo 2004), the more the United States could become a kind of ‘external federator’ of the European Union (Amato and Dahrendorf 2004). There is thus a kind of ‘physical gravity’ working in favour of greater European integration and a question as to what extent the United States will again embrace – and value and support – European integration in the future (Asmus et al. 2005). For Europe to resolve these two crucial issues – its relationship with the US and that with its neighbourhoods to the east – it might actually be more useful to create a ‘Franco-British’ tandem than to rely on the FrancoGerman one. If European integration works best when one succeeds in bringing together the two most divergent opinions, then this would be the

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better guarantor for Europe’s future, as the United Kingdom is the most ‘atlanticist’ and France the most ‘Gaullist’ country. However, such a tandem should complement Franco-German relations, which are again at their best, rather than supersede them. Simultaneously good FrancoBritish as well as good Franco-German relations could nourish the hope that Europe will rise from its present troubles like a phoenix from the ashes.

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Schäuble, Wolfgang and Bocklet, Reinhold (2001) ‘Vorschläge der CDU und CSU für einen Europäischen Verfassungsvertrag’, Berlin, 26 November. Available at: www.cducsu.de. Schröder, Gerhard (1998) Article, Politique Internationale no. 76 (Summer). –––– (2003) ‘Die Krise, die Europa eint’, Die Zeit, no. 14, 2 April. SPD (Sozialdemokratische Partei Deutschlands) (2001) Text of draft resolution, ‘Verantwortung für Europa’, discussed at the SPD Congress at Nuremberg, 19–22 November, reproduced in excerpts in Internationale Politik, no. 9. Süddeutsche Zeitung (2001a) ‚Ende eines Mythos’, 24 January. –––– (2001b) ‚Komödie der Freundschaft’, 31 January. Transatlantic Trends (2004) A Project of the German Marshall Fund and the Comapagnia di San Paolo. Available at: www.gmfus.org. UDF (Union pour la Démocratie Française) (2000) ‘Projet pour une Constitution de l’Union Européenne. Soumis à debat octobre 2000’. Available at: www.weltpolitik.net (‘Policy-Forum Europäische Verfassung’). Védrine, Hubert (2002) Transcript of a press conference from 8 November 2001, published in Internationale Politik, no. 1. Wall Street Journal Europe (2003) ‘United we stand’, 30 January. Weise, Christian (1997) ‘Deutsche Debatte um den EU-Haushalt. Senkung des Nettobeitrags kein Reformansatz’, Wochenbericht des DIW, no. 40: 730–737.

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Leadership in the history of Southeast Asian integration The role of Indonesia in ASEAN Dewi Fortuna Anwar

Introduction For some theorists of regional integration, the existence of a dominant or hegemonic power is a critical precondition of ‘successful’ integration (see Mattli 1999). At first sight, if such notions were correct, Southeast Asia would seem to be a likely candidate for a relatively highly integrated region. On several dimensions, Indonesia is by far the region’s biggest country: it covers a far greater area than any of its neighbours in the region; with well over 200 million inhabitants it accounts for about 40 per cent of the region’s population; and it also has the region’s largest economy, although in per capita income terms it is relatively poor. However, although, with the Association of Southeast Asia Nations (ASEAN), the region has one of the world’s older regional organizations, there has hitherto been relatively little ‘integration’. This state of affairs in part reflects a conscious policy on the part of Indonesia not to play an assertive role in the region, a policy based on the conviction that its neighbours would resist any attempt by Indonesia to ‘dominate’ ASEAN and that such a strategy would be counterproductive to the goal of peaceful intra-regional relations.

Leadership in (international) organizations An effective organization usually has a clear hierarchy and line of command. Depending on the types of organization, decision making can be achieved through a consensual or a top-down process, but in a hierarchical organization the top leadership is primarily responsible for all of the decisions made as well as for the effective working of the organization as a whole. An organization composed of sovereign states, however, is clearly very different in nature and in its operating style from other types of organization. A regional or an international organization made up of independent nation states, where every member regardless of size is regarded as an equal, can never be truly hierarchical. Leadership in a regional or an international organization, where one state assumes primacy over the

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others, can become a very sensitive issue. Nevertheless, while the concept of equality among all members is sacrosanct in regional and international organizations, in practice some countries are clearly more equal than others. The ability of certain countries to lead and the willingness of other countries to accept that leadership depend on many factors and fall more into the realm of arts than science. Leadership in ASEAN is highly problematic and can only be exercised with the greatest of caution. As mostly newly independent countries, members of ASEAN have tended to guard their sovereignty jealously. It was never the intention of the founders of ASEAN that the association should become a supra-regional body subordinating the member states. On the contrary, the objectives of ASEAN to establish regional order and stability were ultimately aimed at strengthening the national resilience of individual members. ASEAN was deliberately designed as a loose regional association, and during its early years the association was highly shy of, and even opposed to, the words ‘regional integration’. No member of ASEAN would accept the proposition that its position or role is any less than the other members or that certain members should have more say than others. During the early years of ASEAN every decision was decided by consensus. As the largest member in terms of geography and population, Indonesia occupies a special position in ASEAN. While it can never be said that Indonesia was or is the leader of ASEAN, for such a clear hierarchy does not exist within the organization, Indonesia has generally been regarded in ASEAN as a primus inter pares or ‘first among equals’. As such, Indonesia has indeed been able to exercise considerable leverage within ASEAN, particularly before the onset of the 1997–98 economic crisis. The positive role that Indonesia played in ASEAN greatly contributed to the success of the association during its first three decades of existence. Nevertheless, Indonesia has generally avoided any attempts to assert its leadership in ASEAN for fear that it may be accused of wanting to dominate the association. Indonesia’s past history of confrontation with its closest neighbours has continued to cast a long shadow up to the present day and has made the exercise of leadership within ASEAN a highly complex matter. While Indonesia’s high profile role in regional affairs could be detrimental to regional harmony, it has also been generally recognized that the absence of an Indonesian posture leaves a vacuum that cannot be easily filled by other members.

Indonesia’s role in the formation of ASEAN It is no exaggeration to argue that ASEAN owes its existence primarily to Indonesia. Indonesia’s policy of confrontation under president Sukarno, which set Jakarta at odds with most of its neighbours, and the subsequent change of regime from Sukarno to President Suharto, who followed very

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different priorities, were the main factors that led to the birth of ASEAN. Indonesia’s foreign policy outlook also strongly coloured the Bangkok Declaration that established ASEAN on 8 August 1967. From the early days of independence Indonesia adopted a ‘free and active’ foreign policy doctrine that forbids the country from joining any military alliances. While many of its Southeast Asian neighbours, such as the Philippines and Thailand, which became members of the US-led Southeast Asia Treaty Organization (SEATO), were close allies of the West, Indonesia was a founding member of the Non-Aligned Movement. Under president Sukarno Indonesia followed a radical nationalist foreign policy characterized by a strong anti-colonial and anti-imperialist stance, a legacy of its revolutionary struggle against the Dutch colonial rule. Throughout the 1950s and early 1960s Indonesia was preoccupied with the struggle to complete the decolonization process as the Dutch had persistently refused to relinquish West Irian (now the provinces of West Irian Jaya and Papua) through peaceful means. As the Netherlands was a member of the Western bloc, Indonesia looked to the Soviet Union and China for support as Jakarta prepared to liberate West Irian by force.1 Jakarta’s increasingly close relations with Beijing and Moscow alarmed the United States and its allies so that when regional rebellions broke out in West Sumatra and North Sulawesi in 1958, they covertly supported the regional rebels from their bases in the neighbouring countries.2 The central government was able to defeat the rebels with relative ease, but this incident further estranged president Sukarno from the West and its allies in Southeast Asia. When the Malaysian Federation was established in 1963 with the strong support of Britain, bringing together Malaya, Singapore and British North Borneo, Sukarno saw this as an attempt to encircle Indonesia. Sukarno regarded the continuing presence of British military bases in the region as a direct threat to Indonesia, as experienced during the regional rebellion. Indonesia therefore declared a military confrontation against Malaysia, which took place from 1963 until after the rise of the New Order government in 1966.3 Indonesia’s confrontation with Malaysia pushed Indonesia closer to Beijing, thereby strengthening the position of the Indonesian Communist Party, and also caused the collapse of the Indonesian economy as relations with the West came to a breaking point. All of these developments led to a major political crisis in Indonesia that culminated in the removal of president Sukarno and the establishment of the army-dominated New Order government of president Suharto, which lasted for 32 years. The establishment of ASEAN was the direct result of a reorientation of Indonesia’s domestic priorities and external outlook. While Sukarno regarded neo-colonialism and neo-imperialism as Indonesia’s greatest enemies and thereby flirted with Communism and Communist countries, Suharto viewed Communism as the greatest threat to Indonesian security. The new regime in Jakarta particularly regarded China as an immediate

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threat due to its support for the Indonesian Communist Party and for Communist-inspired national liberation movements in other countries. The New Order government believed that the best means for ensuring security were through political stability and economic development. These objectives could only be achieved if Indonesia lived in harmony with its neighbours so that neighbouring territories would not be used to subvert Indonesia’s national interests. Earlier attempts at regional associations had little success mainly because Indonesia did not support them. A precursor of ASEAN, known as the Association of Southeast Asia (ASA), was formed by Malaya, Thailand and the Philippines in 1961, but this association never really took off. In 1963 Indonesia, Malaya and the Philippines established Malindo in an attempt to thwart the looming dispute about the Malaysian Federation, but Indonesia’s confrontation with Malaysia soon after had doomed this regional grouping from the start. In contrast to the earlier experience, ASEAN has enjoyed the full backing of the Indonesian government from the very beginning. In fact, throughout its development Indonesia took pains to nurture the association, for example, by deliberately adopting a low profile in ASEAN interaction. Indonesia’s strong support for ASEAN could be attributed to a number of factors. Of these, one of the most important was that the New Order government put stability and economic development as its top priorities. These necessitated developing friendly relations with other countries, particularly Western countries that were the source of most economic aid and investment. Indonesia therefore had to abandon Sukarno’s radical nationalist and overtly anti-Western foreign policy. Indonesia also needed a peaceful and stable regional environment so that the government could focus its attention on domestic issues. Towards that end Indonesia had to develop harmonious relations with its close neighbours. In the wake of the confrontation it was felt necessary to establish a regional body that would promote regional cooperation and understanding. Equally important was the need to restore Indonesia’s tarnished regional and international image due to its bellicose foreign policy in the past. ASEAN was designed to demonstrate Indonesia’s commitment to a good neighbour policy and remove suspicions of its regional ambitions. In a nutshell ASEAN was seen as a means to ‘tame’ Indonesia and transform its relations with its smaller neighbours. It is important to note, however, that the single most important factor that made it possible for Indonesia to co-found ASEAN with Malaysia, the Philippines, Singapore and Thailand – all of them allies of Western powers – was the convergence in the security outlook among these countries. From being a close associate of Beijing, under the New Order government Indonesia became vehemently anti-Communist and shared the fears of its non-Communist neighbours towards China that supported Communist subversion in Southeast Asia. ASEAN was regarded as a shield against possible Communist expansion from the north.


Despite this shift to the right, however, Indonesia remained committed to its non-aligned foreign policy stance. The doctrine of a ‘free and active’ foreign policy is regarded as sacrosanct and part of Indonesia’s national identity that no government can easily ignore. One of the major political mistakes made by Sukarno in pushing Indonesia closer to the Communist camp was that he thereby violated the ‘free and active’ foreign policy principle. Although Indonesia cooperated with other non-Communist countries in forming ASEAN, the New Order government did not want to be accused of joining the Western alliance and abandoning Indonesia’s foreign policy doctrine. Thus Indonesia exerted influence to ensure that the Bangkok Declaration that established ASEAN encapsulated Indonesia’s reservations regarding the presence of foreign military bases and its aspiration that regional security should be the primary responsibility of regional members themselves. Indonesia firmly believed, and continues to believe, that external powers should not intervene in regional affairs. At Indonesia’s insistence the Bangkok Declaration stipulates that foreign military bases are only temporary in nature and that these bases should not be directed against the other ASEAN members, as they had once been in support of Indonesia’s regional rebels (Anwar 1997).

ASEAN’s consolidation and the problematique of leadership A number of foreign analysts have argued that as the biggest country in Southeast Asia Indonesia has a certain sense of regional entitlement. Indonesia’s confrontation policy in the era of Sukarno is regarded as proof of Jakarta’s ambition for regional dominance. When a confrontational policy failed to achieve the desired objective, it was argued, Indonesia then turned to regional cooperation, but the ultimate objective remained basically the same, namely regional predominance if not dominance (Warshawski 1974). It has also been argued that Indonesia’s inability to exert overt influence in ASEAN has led to frustration (Leifer 1983). While there is some truth in the suggestion that Indonesia has a sense of regional entitlement, meaning that Indonesia expects to have a say in the management of the regional order, there is no evidence whatsoever that Indonesia ever saw ASEAN as a vehicle for exercising regional leadership or that it was frustrated with its restricted role in ASEAN. This is not to say that Indonesia was never unhappy with certain policies adopted by ASEAN or by individual members, but throughout the New Order period Jakarta always tried to put regional cohesion as a top priority. ASEAN was regarded as the cornerstone of Indonesian foreign policy and the New Order government would not do anything that would jeopardize ASEAN unity. As mentioned above, the idea of regional integration was initially quite an anathema to the members of ASEAN. Besides the role of nationalism, opposition to a more integrated region that would involve stronger

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supranational authority also reflected the low level of trust among ASEAN members. It was feared that a more integrated ASEAN would enable the larger members to become dominant. Leadership was therefore a problematique within ASEAN that from the very beginning Indonesia understood well. Indonesia’s most important contribution to the advancement of ASEAN has not so been so much its ability to push ASEAN to follow a particular course, but rather Indonesia’s willingness to restrain itself when ASEAN members follow policies contrary to Jakarta’s interests. In fact, one can argue that the success of ASEAN has been predicated upon Indonesia’s willingness to be treated as the equal of the smallest member of the association. Given Indonesia’s past history, it can be appreciated that Indonesia’s deliberately low posture in ASEAN throughout the Suharto period was not always easy and often invited criticisms at home. The policy adopted by Indonesia towards ASEAN can be contrasted favourably to India’s behaviour within the South Asian Association for Regional Cooperation (SAARC). One of Indonesia’s cherished long-term objectives for ASEAN is the establishment of an autonomous regional order where regional members become full masters in their own region. Such an autonomous regional order envisages the closing down of all foreign military bases so that regional security truly becomes the responsibility of regional members. Towards that end Indonesia has been very keen to realize the concept of the Zone of Peace, Freedom and Neutrality (ZOPFAN) in Southeast Asia and to push for the acceptance of the concepts of national and regional resilience. Although these concepts have been formally adopted by ASEAN – ZOPFAN in 1971 and the regional resilience concept in 1976 – it must be admitted that the enthusiasm and commitment of ASEAN members towards these key concepts varies. Several ASEAN countries continue to regard their defence treaties with major external powers as critical to their security. This means that the idea of Southeast Asian countries becoming more independent of external powers, particularly in security matters, has so far been nothing more than a pipe dream. Various analysts have argued that Indonesia’s failure to persuade its fellow members to follow its lead in this regard is one of the main reasons why Indonesia is (allegedly) frustrated with ASEAN. Nevertheless, while Indonesia continues to cherish the ideal of an autonomous regional order free of external intervention, it has in fact avoided criticizing the other members for pursuing different policies. Jakarta is acutely sensitive to the fact that some neighbouring countries have continued to maintain defence links with external powers as security guarantees against possible aggression from Indonesia. An assertive policy from Indonesia, such as demanding that other members become less


dependent on external military protection, would therefore be highly counterproductive to the long-term objective of developing a more cohesive and autonomous regional order. Any frustrations that Indonesia may have felt at the lack of progress in this field have mostly been left unsaid. Indonesia’s unwillingness to assert its position in ASEAN on issues where it was not in total agreement with ASEAN policy could be seen in the case of the Cambodian conflict. During the Cambodian conflict from 1980 to 1991 ASEAN was very successful in adopting a united stance, which put pressure on Vietnam to withdraw from Cambodia. The problem for Indonesia was the fact that the policy of ‘bleeding Vietnam white’ as proposed by certain members of ASEAN, such as Thailand, would reduce Vietnam’s ability to stand up to China. But Thailand was able to set the ASEAN agenda on dealing with the Cambodian conflict as it was considered to be the front-line state. Given that Indonesia viewed China as the greater threat and that most Indonesians admired Vietnam’s strong nationalism and its ability to resist foreign domination, many in Indonesia were unhappy with the official line taken by ASEAN. The Indonesian government was criticized, particularly by elements in the military and nationalist groups, for allowing ‘the Thai tail to wag the ASEAN dog’. The way in which Indonesia resolved this dilemma – namely by maintaining ASEAN unity and at the same time pursuing its own foreign policy priorities – was an interesting demonstration of non-assertive or indirect leadership. Instead of forcing ASEAN to ease its pressure on Vietnam, Indonesia decided to follow a dual-track foreign policy on the VietnamCambodia conflict. On the one hand, through the Foreign Ministry, Indonesia followed the official ASEAN line of putting pressure on Vietnam. On the other hand, the Indonesian military opened a dialogue with Vietnam. Indonesia also took the initiative, outside the ASEAN framework, to host informal negotiations between the conflicting parties through the so-called ‘cocktail parties’ and ‘Jakarta Informal Meetings’. After these unilateral initiatives Indonesia was then officially appointed by ASEAN to be its official interlocutor with Vietnam, thus formalizing an extra-ASEAN initiative into the ASEAN framework. Together with France, Indonesia then co-chaired the meeting that led to the signing of the Paris Accord, which led to the withdrawal of the Vietnamese forces from Cambodia. Indonesia’s role in the Cambodian conflict further strengthened the argument that Indonesia has never seen ASEAN as the forum or vehicle for asserting its leadership if such a role goes against the prevailing views. Instead, when it felt the need to do so, Indonesia would chart its own course outside ASEAN and allow the other members to decide for themselves whether to follow. Indonesia feels no such constraints in larger international groupings, such as the Non-Aligned Movement, where sensitivities about Indonesia’s role are not really an issue.

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Indonesia’s policy in ASEAN throughout the New Order period was largely attributed to the leadership style of president Suharto, who was very much influenced by Javanese culture. Suharto advocated the notion of tut wuri handayani (‘leading from behind’). Though such a notion of leadership was never really practised in the domestic context, where the army led from the top, Indonesia’s role in ASEAN could indeed be termed an exercise in ‘leading from behind’. Indonesia mostly avoided being too assertive in ASEAN, but at the same time it would not tolerate other members playing too dominant a role in the association either. The stance adopted by the Suharto government on issues of economic integration and trade between ASEAN states was in line with this concept of ‘leading from behind’. Because of Indonesia’s relative economic weakness, the government long resisted proposals for intra-ASEAN trade liberalization, fearing they would disadvantage Indonesia (Lee Kuan Yew 2000: 370). ASEAN made no substantial moves towards trade liberalization until the early 1990s. These moves were then sponsored primarily by Singapore and Thailand, but were apparently accepted by Suharto, who also played an instrumental role in the adoption by APEC of a plan to liberalize Asia-Pacific trade at this organization’s summit at Bogor in 1994 (Keating 2000: 102–114). Indonesia appeared to exercise a veto power over ASEAN’s economic agenda and to accept significant trade liberalization only once – after a long period of rapid economic development, Suharto thought the country was strong enough to cope with intra-regional competition. Indonesia’s strong support and nurturing policy towards ASEAN mostly took place during the New Order period that lasted until Suharto’s fall in 1998. This was undoubtedly related to the fact that Suharto was a founder of ASEAN and regarded the success of the association as important to his own credibility and regional vision. Suharto resisted public pressure at home to break diplomatic ties with Singapore after Singapore executed two Indonesian marines in 1968. The marines were arrested for trying to carry out sabotage attacks against Singapore during the days of confrontation. It is important to note here that some Indonesian members of parliament suggested at the time that Indonesia bomb Singapore in retaliation for the executions. Suharto also played an important role in improving relations between Malaysia and the Philippines after the Corregidor Affair broke out in 1968. This incident related to the news that the Philippines’ government was training recruits in Corregidor to infiltrate Sabah, the Malaysian state that was also claimed by the Philippines. Suharto privately intervened by meeting the foreign ministers of the two countries separately. In 1987 the president again demonstrated his strong commitment to ASEAN solidarity by insisting on attending the ASEAN Summit in Manila against the advice of his security advisers, who were worried about the political and security problems then faced by president Cory Aquino.


Conclusion Although throughout the New Order period Indonesia refrained from asserting its leadership in ASEAN, there was never any doubt that Indonesia was regarded as the first among equals. The respect, if not deference, given to Indonesia was partly due to the personal stature of president Suharto as the longest serving leader in ASEAN and to Indonesia’s own relative success in promoting political stability and economic development. The situation has now clearly changed. Indonesia’s economic crisis, political turmoil and various security threats within the country have forced the Indonesian government to become even more inward-looking than before, thereby somewhat neglecting its external commitments. The emergence of new leaders in Indonesia, mostly with little knowledge of ASEAN, has recently created problems with neighbouring countries and created the impression that Jakarta was no longer as committed to ASEAN. Neighbouring perceptions of Indonesia have also changed drastically from the earlier period. Far from seeing Indonesia as a ‘leader’ in ASEAN, many neighbouring countries have meanwhile begun to see Indonesia as a problem. On issues of economic integration and trade, the most developed member state, Singapore, and Thailand have assumed the role of a joint ‘engine’ of ASEAN, sponsoring the project for an ASEAN Economic Community (AEC) and pushing for its more rapid realization. Significantly, ASEAN has made more progress on this front in recent years than in the area of security, where Indonesia’s proposal to create an ASEAN Security Community (ASC) was greatly diluted (see the chapter by Haacke in this volume). It remains to be seen, however, whether, especially in the absence of enthusiastic Indonesian participation, ASEAN’s recent trade liberalization initiatives will be implemented as intended. Although regional integration or cooperation has not ground entirely to a halt in Southeast Asia since the fall of Suharto, a weak Indonesia has been detrimental to both the country itself and to ASEAN. This is the challenge that both Indonesia and ASEAN must face together. Indonesia needs the support of its ASEAN neighbours to achieve full economic recovery and ensure its territorial integrity. At the same time ASEAN needs Indonesia to play an active role if the association wishes to sustain its regional and international standing, for, despite the ‘slack’ taken up by some other members, especially Singapore and Thailand, on some issues the vacuum left by Indonesia cannot easily be filled by any another member state.

Notes 1 2

For a good understanding of Sukarno’s ideology and political behaviour see Legge 1972. Regional rebels obtained weapons from Malaya and Singapore and found sanctuaries there after being defeated by the Central Government. An American

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3

Dewi Fortuna Anwar pilot named Alan Pope from Clark Airfield in the Philippines bombed Ambon in a campaign to help the rebellion, but was caught after his plane crashed. For an account of the US role in supporting Indonesia’s regional rebellions see Kahin and Kahin 1995. For the best account of the confrontation, see Mackie 1974.

References Anwar, Dewi Fortuna (1997) Indonesia in ASEAN: Foreign Policy and Regionalism, Singapore: ISEAS, first reprint. Kahin, Audrey R. and Kahin, George McT. (1995) Subversion as Foreign Policy. The Secret Eisenhower and Dulles Debacle in Indonesia, New York: The New Press. Keating, Paul (2000) Engagement: Australia faces the Asia-Pacific, Sydney: Pan Macmillan. Lee Kuan Yew (2000) From Third World to First: The Singapore Story: 1965–2000, Singapore: Times Media. Legge, John D. (1972) Sukarno: A Political Biography, London: Allen Lane/Penguin Press. Leifer, Michael (1983) Indonesia’s Foreign Policy, London: George Allen & Unwin. Mackie, J.A.C. (1974) Konfrontasi: The Indonesia-Malaysia Dispute, 1963–1966, Kuala Lumpur: Oxford University Press. Mattli, Walter (1999) The Logic of Regional Integration: Europe and Beyond, Cambridge: Cambridge University Press. Warshawski, Howard (1974) ‘From Confrontation to Cooperation: The Influence of Domestic Forces on Indonesian Foreign Policy’, Ph.D. thesis, Charlottesville, VA: University of Virginia.

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5

Leadership in institution building The case of ASEAN+3 Shiping Tang

Introduction As a region still plagued by age-old distrust and rivalries, East Asia only caught up with the idea of regional economic integration after the 1997 financial crisis. The stark contrast between America’s prompt reaction to the financial crisis in Mexico and its lukewarm reaction to the East Asian contagion propelled regional states to seriously ponder, for the first time in their history, the idea of forming a more cohesive regional bloc to weather future shocks and cope with the aftermath of the crisis (Munakata 2002). At the same time, regional states’ recognition that East Asia is rapidly falling behind other parts of the world (the EU, North America) in regional integration has added a new sense of urgency toward regional integration (Shorrock 2002; Tang 2001; Radtke 2001). With even the less developed Africa continent forming an African Union (AU), East Asian states realize East Asia may remain fragmented for the next 20 or 30 years if they cannot get together and build an institutional foundation to take care of the long-term prosperity and security of the region. It is within this context that the ASEAN+3 (ASEAN Plus Three (APT), also ‘10+3’) framework has been getting increasing attention recently, both within and outside East Asia (Stubbs 2002).1 With the vision of ‘10+5’ (including Australia and New Zealand) receiving only lukewarm reception in the region, most regional states consider ASEAN+3 to be the most promising and feasible platform for realizing East Asian integration. Nonetheless, ASEAN+3 has not made very much progress towards becoming a codified institution, and much of the discussion on East Asian integration remains more about vision than about tackling the practical obstacles to realizing this vision. This chapter will try to fill this void and address the critical issue of leadership in institution building.

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Leadership in the domestic and international arenas Domestic leadership Because human beings are a social species, leadership, defined as ‘the process through which one member of a group influences other group members toward the attainment of specific group goals’ (Yukl 1994), has been associated with us since the very beginning of our existence. Unsurprisingly, our inquiry into it started thousands of years ago, as demonstrated by ancient Greek and Chinese writings. Modern studies of leadership, however, did not start until the birth of social psychology in the early twentieth century, because leadership is both a political and a social psychological phenomenon. Kurt Lewitt’s and his colleagues’ work (published in 1939), in which they concluded that different kinds of leadership lead to great differences in group performance, marked the first serious inquiry into leadership by social psychologists (Baron and Byrne 1997: 13–15). From then on, especially with the rise of organization behaviour studies, leadership remained a critical sub-field of social psychology, with a general consensus that leadership is both trait-based and situational, contradicting the conventional wisdom that leaders are mostly naturally born. Today, social psychologists are developing tools for identifying potential leaders for particular situations, at least in the corporate world. James Burns’s Leadership, and to a lesser degree, Richard Neustadt’s Presidential Power, marked modern political scientists’ efforts to study leadership with Burns’ concept of ‘transformational leadership’ being especially influential (Burns 1978; Neustadt 1960). More recently, Michael Kane’s ‘moral capital’ added a new dimension to studies of leadership (Kane 2001). Political scientists’ inquiries into leadership, however, seemed to have ignored progress made by social psychology. They generally followed the path taken by Max Weber and fell into the trap of over-personifying leadership.2 They usually focus on how a particular leader overcomes a string of roadblocks and finally succeeds while neglecting some obvious questions. Why does a leader (apparently with many traits of leadership) often have to fail many times before he can finally succeed? Is it simply because he has to learn some hard lessons (trial and error) or because he was perhaps not good at handling certain situations? If so, what constitutes successful leadership in a time of crisis? Without answering these questions, most studies of political leadership tend to be an ad hoc recounting of what happened, reinforcing the popular myth that a leader is a leader because he was born to be, and his/her failures are simply a necessary learning process and offer little guidance on how to manage certain situations.

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Hence, even though political scientists have made some tangible contributions to our understanding of leadership, much remains to be done in our analysis of this topic. Most importantly, we have yet to discover what kind of leadership best fits what kind of task. International leadership While we have many studies on leadership in the domestic arena, few studies on international leadership exist. Although there are studies of international leadership, the subject is primarily viewed through a domestic prism, with most studies taking leadership only as a question for the hegemon (on this point, see Cooper et al. 1991: 393–394) and international leadership sometimes being a euphemism for one state bullying some other states into submission. However, great differences exist between successful domestic leadership and successful international leadership. First, domestic leadership usually operates in a hierarchical space (even in horizontal organizations) while international leadership is exercised in an anarchical space. Second, compared with domestic leadership, successful international leadership usually rests more on moral justification than on power per se. Third, while states do act selfishly under anarchy, successful international leadership must be based at least partly on enlightened self-interest. Fourth, while the legitimacy of leadership in the domestic arena usually rests on both institutional arrangement and performance, the source of legitimacy for leadership in international affairs is harder to pin down.3 Finally, international leadership requires more persuasion rather than the threat or the exercise of force (thus, simply compelling others to obey is not leadership). We define successful international leadership as a process through which any combination of the following five objectives is achieved: (1) preventing conflict (leadership for preventive diplomacy); (2) winning a just war by leading a war coalition; (3) bringing conflict to an end (leadership for ending war); (4) constructing the foundation of lasting peace (leadership for building peace or reconciliation); and (5) advancing the common interest of a group of states (leadership for common interest). Leadership in institution building belongs to the fifth category of successful international leadership. In international relations theory, the analysis of institution building should be a natural task for neo-liberals. Surprisingly, despite the fact that no institution will exist or function properly without effective institution building, neo-liberals have traditionally paid little attention to this topic, perhaps because they have been more interested in opposing realist theorists on the issue of how much international cooperation is possible under anarchy (see various contributions in Baldwin 1993 and Jervis 1999). Oran Young’s work is an exception. He identified leadership and institutional (integrative) bargaining as the two factors critical for any successful

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institution building. On leadership, Young argued that only two of the three types of leadership (structural, entrepreneurial and intellectual) are needed for successful institution building (Young 1991: 281–308). Structural leadership comes from the preponderance of power, entrepreneurial leadership means skilful diplomacy, and intellectual leadership means educating states and transforming their ideas of self-interest. Most importantly, Young contended that leadership from a hegemon (structural leadership) is neither necessary nor sufficient for effective institution building.4 Young further noted that institution building is a bargaining process because states must bargain to agree to the rules of the game and on how to enforce the rules. But bargaining over institution building and regime formation is different from distributive (or positional) bargaining. Distributive bargaining is about how to divide what we have right now, while institutional bargaining is about how first to create something so that we can share the benefits.5 Further, because states tend to bargain especially hard if they believe that a future institutional arrangement will be enforceable and enforced (Fearon 1998), choosing the right issue to bargain over becomes more important. If an institution can get one or two regimes codified, the prospect of successful institution building will brighten: successful regime building can give states more confidence to move towards more difficult issue areas, thus generating positive feedback and turning institution building into a virtuous cycle. Otherwise, cooperation may be hard to realize and regime formation becomes difficult. This means that institution building through bargaining is a path-dependent process ( Jervis 1997: 156–176). Obviously, institution building through bargaining is inherently tied to the issue of leadership in institution building (a point that Young strangely forgot to emphasize), because if institution building through bargaining is a path-dependent process, then choosing the right issue areas to bargain over is a part of leadership.

Searching for leadership under ASEAN+3 with what we have When it comes to the question of leadership in pushing forward regional integration, the ‘hegemony’ school of institutionalism, drawing from European and US experiences, has argued that leading states in the region should take the leading role and provide medium to small states with public goods. The ‘hegemony’ school of institutionalism argues that without structural leadership from leading states, regional integration would likely prove unfeasible. In East Asia, the search for structural leadership naturally points to Japan and China. Indeed, the weight of Japan and China in East Asia looks strikingly similar to that of Germany and France for Europe. Even more similarly, these two countries, like Germany and France, have also fought each other bitterly.

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The similarity stops here, however. Unlike Germany and France, which have largely achieved reconciliation,6 China and Japan are far from reaching a similar accommodation, largely because Japan has been unable to offer a satisfying apology to its former victims. Indeed, other than ever deepening economic interdependence, the relationship between Japan and China remains on shaky ground due to the two countries’ different perceptions of Japan’s invasion of China during the Second World War, territorial disputes over Diaoyu (Senkaku) Island, and Japan’s alliance with the US and its implications for the Taiwan question. What is more, even if there is no possibility of war between the two states, achieving cooperation among nations is not an easy task and when it comes to leadership, it will be even more difficult, as recurrent conflicts even between France and Germany in the EU testify. With Japan and China still viewing each other as strategic rivals, the possibility that Japan and China can share the leadership of East Asia seems to be low in the near future. This calls into the question whether regional integration in East Asia can actually replicate the European experience by depending upon leadership from the region’s two leading economies. International cooperation theory has recognized that it is possible for a third state or player to serve as an enforcer or facilitator of cooperation when two states seem unable to bridge their differences, if the third party is more powerful than the two and can maintain amicable relationships with the two. Traditionally, this role would be filled by the United States. For instance, the US played a constructive role in bringing not only France and Germany, but also South Korea and Japan together (Phillips 2001 and Cha 1999). Unfortunately, because of the distrust between US and China and the US-Japan security alliance, it is unlikely that China would accept the US as the enforcer of Sino-Japan cooperation – and it is also debatable whether the US would want to facilitate Sino-Japanese cooperation. The key question thus becomes whether, in the absence of Sino-Japanese cooperation, there is any other state or combination of states that can lead regional integration in East Asia. Fortunately for the prospects of East Asian integration, empirical evidence from actual institution building processes has lent credence to the notion that small to medium-sized states can actually provide leadership when large countries do not. For instance, the ASEAN Regional Forum (ARF), with ASEAN states at its centre, has certainly done a lot for regional security (Acharya 2001). Similarly, in the GATT (now WTO) Uruguay Round of trade negotiations, the Cairns Group, formed in 1986, ‘has effectively put agriculture on the multilateral trade agenda and kept it there’ (Cairns Group, n.d.).7 Extending this logic to East Asia, South Korea and the ASEAN states collectively may be the only possible facilitators or enforcers of cooperation between China and Japan. As long as close bilateral cooperation

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between Japan and China is not on offer, the devolution of East Asian leadership to Korea and ASEAN states represents the best hope for advancing regional integration. There are at least two solid rationales for arguing that this might occur. First, the ASEAN states and South Korea as a group enjoy the trust and support of both China and Japan. Second, letting ASEAN and South Korea take the lead may alleviate their fear that, as small or mediumsized states, they otherwise will not be able to prevent dominant powers – in this case, Japan and China – from abusing their power.

Leadership reformulated: are ASEAN and South Korea up to the job? If we accept that ASEAN and South Korea must lead East Asian integration for now, how should they exercise leadership? As stated above, social psychology has acquired a more fine-grained understanding of leadership in the past several decades, with the most significant conclusion that leadership is far more situational than we previously thought. To put it differently, while there may be some truth about the notion that leadership does require certain inherent qualities, there is more truth to the notion that leadership is successful when it comes at the right time, at the right place, with the right people and with the right approach. Leadership in institution building is a very special task on at least four fronts. First, it is both institutional and personal. This means that an egoistic person may not be the best choice for leadership in institution building. Second, it is both international and national, thus the leadership has constantly to bargain at two levels. Third, the leadership’s audience is usually not the general public in the region, but a group of career bureaucrats, different national leaderships and non-governmental organizations (NGOs). Finally, leadership is usually based on a consensual, not formal, delegation of power (a group of states lets one state take the lead, either voluntarily or following an agreement reached through hard bargaining). Leading institution building may therefore require a specific mix of qualities. Drawing from studies on the process of regime formation (Moravcsik 1991; Sandholtz 1993), we propose that, other than the conviction that the goal set is desirable, at least four ingredients are necessary for effective leadership in institution building: • • •

optimism: the belief that the ultimate goal is within reach; devotion: being willing to pursue the goal vigorously; pragmatism: setting timetables for certain goals and getting there before the deadline;8

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•

skill: possessing the means to realize the goal, such as Oran Young’s criteria of intellectual leadership, entrepreneurial leadership, and issuesetting and deal-closing leadership (Young 1991).

Let us now examine to what extent the ASEAN states and South Korea can provide these ingredients and thus leadership in East Asian integration. Optimism No grand project can be carried out without a strong belief that it is feasible. Optimism is one of the essential components of effective leadership. In this aspect, the fate of the EU as the grandest experiment since the dawn of the sovereign state certainly has a lot of bearing on East Asian states’ thinking about the fate of their own region. As the former Malaysian prime minister Dr Mahathir himself admitted in Europe’s German heartland: ‘If you fall flat on your faces, then we do not have a free trade zone.’ East Asian countries are certainly applauding the rise of the euro and quietly switching some of their foreign reserves into euros. But are East Asian states now more optimistic than they would have been otherwise that there will one day be a common Asian currency? Certainly, the most important lesson from the dramatic turnaround in the euro’s fortune is that optimism generates confidence and confidence generates even more optimism (i.e. because more people come to believe in the rise of the euro, the euro will rise, thus fuelling even more optimism). Therefore, if East Asian states were to draw any lesson from the rise of euro after the new currency had initially taken a veritable beating, it would be that even a fragmented region such as East Asia could unite into a powerful player (Europe was just as fragmented as East Asia 60 years ago, only a bit bloodier) (Lander 2003). Likewise, European states’ voluntary submission of a part of their national sovereignty should give East Asian states the confidence that they can do just the same in the future. Devotion Great feats can be accomplished only with unflinching devotion. To realize the vision of an integrated East Asia, we will not only need East Asian states to devote political and financial capital for the goal, we will also need individuals with great devotion to the goal and backed by intellectual presence. If we look back at the European experience, without leaders such as Churchill, Monnet and Schuman in the early years, plus the continuous strong commitment from two key countries (France and Germany), the integrated Europe we have today is unlikely to have emerged so early.

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In East Asia, with leaders such as the former Singaporean and Malaysian prime ministers, Lee Kuan Yew and Mahathir respectively, fading into obscurity and the former South Korean president, Kim Dae-jung, leaving behind a tarnished legacy, the region seems to be devoid of leaders with charisma, devotion and moral capital. Is East Asia therefore doomed? The more interesting aspect of ASEAN’s leadership in regional affairs should give us more confidence. In the past decade, while none of the ASEAN leaders as an individual played a ‘transformational’ role in regional affairs, the ASEAN states as a group were ‘transformational’: ASEAN succeeded in bringing all major powers into the ARF and constructing a better regional security environment before the 1997–98 financial crisis. The problem, of course, might be that ASEAN has yet to fully recover from this crisis, just when the grand project of regional integration demands more from it. Therefore, it is crucial for South Korea and especially for ASEAN to retain the confidence that, despite the financial crisis, ASEAN remains a critical force in regional affairs. The fact that four ASEAN states – Indonesia, Malaysia, the Philippines and Thailand – are members of the Cairns Group, which was successful in bringing the agricultural trade issue to the forefront of the Uruguay Round trade negotiations (see above) should provide valuable lessons for ASEAN and South Korea in trying to bring China and Japan together (Higgott and Cooper 1990). Only with confidence in their ability to shape the region’s future can ASEAN and Korea be expected to devote political capital to the task and persist in trying to realize it, despite expected hard bargaining and impasses. Pragmatism Despite the general conviction among regional states that regional integration under ASEAN+3 is good for them (and for the whole region), there seems to be great differences among different East Asian leaders’ visions for the region. One can detect at least three different visions for East Asian integration. For some, an integrated East Asia means a naturally developed trading bloc with the help from the powerful invisible hand of ever closer economic interdependence. For others, an integrated East Asia means a bloc, eventually with a set of consciously constructed rules governing the behaviour of member states (maybe not exactly like the EU, but at least similar to it). Finally, for some even a free trade zone is not a viable option for East Asia for the foreseeable future and ASEAN+3 is likely, therefore, to remain no more than a place for simply showing East Asian solidarity (versus others, the EU and NAFTA, say) (Straits Times 2002). A healthy debate on the relative merits of these different visions is certainly necessary. But such a debate would not give us all the answers

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to questions about the future of East Asian integration. Only real groundwork will tell us which is the best choice for the region. Countries in East Asia therefore must not take each other’s visions as competing ends of regional integration, but rather as different paths or certain milestones towards a more integrated region. Instead of debating which vision is the right one and holding up the real groundwork, ASEAN and Korea must be pragmatic. They must set a few deadlines for achieving some milestones along the road of the integration process (e.g. an ASEAN-China FTA in 2010, an Asian bond market in a not too distant future, etc.). They must then work hard to getting to these destinations on time. ASEAN+3 may move forward without a clear vision for a while (we can cross the river by feeling the stone), but it cannot survive without some outstanding achievements (this relates to the question of institutional bargaining) that make states believe in the enterprise’s eventual success. Skill: a new set of skills from a new mindset Perhaps simply because of their geographic locations, the ASEAN countries and South Korea over the years have perfected the art of maintaining a delicate balance of power and demonstrated great dexterity in diplomacy. Most of their skills, however, will have to be retooled for the new task of regional integration if there is to be any chance of ASEAN and South Korea leading East Asia as a whole along the road towards a more integrated region. First and foremost, the present endeavour requires the ASEAN states and Korea to change fundamentally their mindsets. In the past, these states tended to play major powers off against each other so that they could maintain a delicate balance among the major powers. Now they will have to play an entirely new role: that of facilitators or enforcers of cooperation between China and Japan in a regional context. Instead of preventing great powers from getting together and marginalizing middle powers’ interest through collusion, ASEAN and Korea now must try to bring great powers together and make them work for a common regional interest. The ASEAN states must recognize that ASEAN as an economic bloc has no independent future. While ASEAN’s formation of linkages with all kinds of external economic blocs may be self-gratifying, these merely reflect the fact that ASEAN cannot sustain itself without integrating into the larger East Asian bloc. This task requires agents of ASEAN states and South Korea to be skilful diplomats not only for their own countries, but also at getting Japan and China to agree. They should bargain hard not only for their own countries’ interests but also out of a sense of ‘enlightened interest’ in order to reach consensus among themselves and then get Japan and China to go along

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with them. When attempting to get China and Japan to agree on something, the ASEAN states and Korea have to behave as honest brokers in the interests of the whole region and avoid being perceived as unfairly targeting either Japan or China, although adding a dose of competition to Sino-Japanese relations to get China and Japan on board may not be an entirely bad thing.9 Practical issue I: choosing the right path and generating positive feedback Because institution building is a path-dependent process, the ASEAN states and South Korea must be skilful in choosing the right path by setting and advancing the agenda (of course, with consultation with Japan and China). Or, to put it the other way around, taking the wrong way can severely hinder the institution-building process and waste tremendous amounts of (human, financial and political) capital. The worst outcome would be a lack of progress, which would generate a vicious cycle of incompetence and inattention, rendering the vision of integration through institution building meaningless. As cooperation theory has argued, different issue areas (such as the arms race, trade, telecommunication standards) often have different strategic structures that will influence the bargaining process through which states reach cooperation (Oye 1986; Fearon 1998). It is therefore reasonable to assume that under ASEAN+3 it will be easier for states to reach agreement in some areas than in others. Again, Young has made a significant contribution for guiding the selection of issue areas for jumpstarting the process of institution building through regime formation. He argues that international regime formation is more likely when (1) the issues at stake lend themselves to contractarian interactions; (2) arrangements exist that all participants can accept as equitable or fair rather than efficient; (3) salient solutions exist; and (4) clear-cut and effective compliance mechanisms are readily available (Young 1990: 366–374). For the task of identifying issue areas for jumpstarting regime formation under ASEAN+3, ASEAN and Korea should learn from their own and other institutions’ experiences of negotiation in multilateral settings and take the lead in identifying issue areas in which great chances exist for regional countries to agree on initial action. In particular, regional states should first try to build upon existing multilateral agreements or initiatives, such as the currency-swap arrangement formulated under the Chiang Mai Initiative (CMI) in 2000. While this arrangement has yet to approach the vision of an ‘Asian Monetary Fund’, it does give regional states another tool with which to confront future emergencies and increases the bargaining leverage of regional states

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versus the IMF in time of need. Making the arrangement work on a codified regional (right now, it is more on a bilateral) basis should give regional states more confidence that they can accomplish things through regimes and institutions. Second, and most importantly, because there has been a clear difference in the success of regime formation in different issue areas, regional states have to identify issue areas in which regional states are more likely to agree so as to build momentum for institution building and foster trust between Japan and China. Possible areas include environmental protection, water management and liberalization measures in specific sectors. The possibility of an ‘early harvest’ agreement reducing tariffs on agricultural products between China and ASEAN, while limited in scope and scale for now, could also be a good starting point (Lianhe Zaobao 2002; Straits Times 2002). Finally, regional states should also seriously consider launching a body for coordinating economic and monetary policies in member economies, especially in large economies such as Japan, China and South Korea. At the very least, these states should get their economic and financial policy makers under the same roof and make their policy-making processes known to other member states.10 Workshops on policy making in individual countries should be offered for officials from all regional countries. While the role of supranational bodies in regime formation is still debatable, it is better to give them a chance. All these efforts should be geared toward making institution building under ASEAN+3 a positive feedback process, making regional states more willing to cooperate by bringing cooperative benefits to member economies. Practical issue II: bringing Japan and China together, gradually The devolution of leadership to ASEAN and South Korea represents a temporary solution for achieving regional integration under ASEAN+3. Eventually, the success of ASEAN+3 depends upon a closer and much more cooperative relationship between Japan and China. Just as a European Union without cooperation between Germany and France is unimaginable, an East Asia without constructive cooperation between Japan and China has no future. Japan and China will ultimately have to come around if the East Asian states are to achieve something together. Unfortunately, with domestic constraints on both sides, Japan and China seem unable to transcend their historical bitterness and forge a more productive relationship. Despite their deep economic interdependence, the two countries continue to view each other more as rivals than as potential partners. If they are to get together, Japan and China have to do at least a few things.

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First, they have to recognize that ASEAN+3 represents the best and the last chance for realizing regional integration in East Asia. If, after the East Asian Economic Caucus (EAEC), AMF and various other unsuccessful projects, ASEAN+3 cannot succeed, what else can East Asia turn to? The answer is absolutely nothing. It is therefore imperative, simply out of political necessity, that Japan and China recognize that they will have to cooperate with each other. With their own future fatefully tied to the future of East Asian integration, they must shoulder the responsibility. For that, Japan and China have to do their own part. Second, Japan has to face the dark side of its past with courage and dignity. It has to understand that it will be difficult for a nation that cannot overcome its ‘inner demons’ to become a normal nation, no matter how hard it tries. This is because a state’s self-image is not a sole product of its self-imagination, but has to be confirmed by its interactions with other states. In this sense, Japan has to learn from Germany and initiate an official policy of trying to reach successful reconciliation with its past victims, just as Germany did (Feldman 1993; Akermann 1994). Only then could Japan be accepted as a natural leader of Asian affairs and have a more constructive relationship with China and other regional states. Third, given that Japan is nonetheless unlikely to go back to its militarist past and become an expansionist power again, China’s media and elite have the responsibility of making its own people aware of this fact. On this account, China also has a lot of work to do. Finally, both Japan and China have to forsake their illusion of singularly dominating the region: neither of them can. East Asia is a region with simply too much external presence for a single regional power to be able to hope to achieve dominance. Moreover, while the call for Japan to become a ‘Great Britain in the Far East’ (an off-shore balancer against continental powers) makes strategic sense (Asher 2001), it makes no economic sense at all. Therefore, Japan and China must understand that competition for regional dominance will not only be a waste of precious resources, but also a waste of precious time, although competition to liberalize trade and facilitate integration may be a good thing.11 Fundamentally, East Asian integration depends on whether Japan and China can recognize the political necessity of cooperating with each other even though it may not be psychologically comfortable for them to do so. What ASEAN+3 can do is to bring Japan and China together under a multilateral framework, and get them, with prodding from the ASEAN states and South Korea, to learn how to cooperate. Regional states must keep in mind that only if they can bring Japan and China together will their efforts to forge closer regional integration eventually pay off. Indeed, the leadership supplied by ASEAN and South Korea must be measured partly by how successful they prove in bringing Japan and China together.

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Conclusion: changing mindsets by learning to cooperate Finally, we come down to an area that has been relatively under-discussed in multilateral organizations: mental barriers. Reaching for the goal of regional integration in East Asia requires a fundamental change of mentality for all states in the region. First, Japan and China have to recognize that because the two countries will not be able to overcome their mutual suspicion anytime soon, working together and learning how to cooperate under a multilateral framework is the best way for them to build more trust, pay less attention to relative gains, and eventually achieve a more constructive bilateral relationship. They should therefore try to work together more rather than going their separate ways. Second, while China and Japan have to assure regional states that they do not seek regional hegemony, regional states also have gradually to recognize that persistent mistrust of China and Japan’s intentions will be counterproductive at some point. While expressing suspicion of China’s and Japan’s intentions may be good for short-term gains by squeezing more concessions from the two leading states, their goodwill will have a limit. Other regional states must therefore make concrete efforts to let Japan and China know that regional states do appreciate the two states’ goodwill gestures.12 Moreover, regional states must also be prepared to offer Japan and China leading voices in some critical issues, once the institutionbuilding process has gained momentum and the two states have reached a more constructive modus vivendi. Trust must be mutual: when Japan and China are willing to trust regional states, regional states must be willing to trust Japan and China more. Last, contrary to the fear of the political class in some ASEAN states, especially Singapore (Lee 2002; Yeo 2001), that a more integrated East Asia will mean the withdrawal of the US from the region (therefore leading to their submission by Japan and China), the chance of this fear materializing is very remote. Not only are there institutions such as APEC keeping the US permanently (and hopefully constructively) engaged in the region, but also neither China nor Japan wants to exclude the US from the region. Harbouring such a fear can only prevent ASEAN states from taking a leadership role in pushing regional integration. The worst scenario for East Asia is not one in which an integrated region is dominated by China or Japan, neither of which would be able to dominate it, but rather one in which there is no regional integration at all. In the end, the future of ASEAN+3 does not depend on what ASEAN+3 has done so far – it depends on what the ASEAN+3 member states choose to do in the future. For optimists, ASEAN+3 can achieve great things if member states have the requisite political will and wisdom. For pessimists

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(see, for example, Ravenhill 2002), ASEAN+3 has no future even if member states try because East Asia is simply not (Western) Europe. I would opt for the former position and hope the region can get together in time to deal with the next crisis – because new crises will come.

Notes 1 ASEAN+3 includes the ten Association of Southeast Asian Nations (ASEAN) member states and three Northeast Asian countries ( Japan, South Korea and China). East Asia refers to Southeast and Northeast Asia. 2 Max Weber espoused the concept of the ‘charismatic leader’, whom he defined as ‘set apart from ordinary men and treated as endowed with supernatural, superhuman, or at least . . . exceptional powers and qualities . . . which are not accessible to the ordinary person but are regarded as of divine origin as a leader’ (Weber 1947: 358–359). 3 The discussion on the ‘democratic deficit’ in international institutions is closely related to this issue, although it does not directly address the issue of leadership inside institutions or during institution building. The author thanks Iain Johnston for bringing out this issue. For contributions to the debate on the democratic deficit, see Keohane and Nye 2002: 219–244 and Coleman and Porter (n.d.). 4 In contrast to Young, Keohane (1984) argued that hegemony is necessary for building an institution, although not necessary for maintaining the institution, thus the title of his book: After Hegemony. Lake (1993) has developed an incisive critique of the ‘hegemony theory’. 5 Hence, the ultimate failure of distributive bargaining may be just living with the uncomfortable status quo, while the ultimate failure of institutional bargaining will be never realizing the future benefit embedded in a successful agreement (Young 1990: 361–366). 6 International conflict resolution or reconciliation, defined as the process through which former opponents reshape their hostile relationship into a stable peace, is different from conflict termination or settlement. Conflict termination or settlement does not necessarily lead to reconciliation, and sometimes may actually lay the seeds for another round of conflict (e.g. the Versailles Treaty). Only a successful reconciliation can guarantee peace. On this issue, see Akermann 1994 and Feldman 1993. 7 Formed in 1986 with 14 members, the Cairns Group meanwhile has 18 members: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, Thailand and Uruguay. 8 ‘Vision’ is not included because the leader does not have to be a visionary in a strategic sense. Instead, he must be more an operator than a visionary, although he may have to be very creative in getting things done. 9 For instance, the quickening pace of negotiating an FTA between South Korea and China may force Japan’s hands (Kim 2002). 10 Initiatives such as the ‘China-ASEAN Macroeconomic Policy Forum’ resemble this idea (Xinhua News Agency 2002). 11 Thus, one should not view the competition between Japan and China to woo ASEAN countries as a completely bad thing if it leads to an accelerated pace of integration. 12 China’s recent moves such as forming an FTA with ASEAN, signing a declaration on the ‘Code of Conduct’ with ASEAN concerning the South China Sea, and joining the Treaty of Amity and Cooperation in Southeast Asia have been designed to assure ASEAN states of China’s goodwill. In contrast, Japan is perhaps causing more anxieties about the nature of its intentions.

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References Acharya, Amitav (2001) Constructing a Security Community in Southeast Asia, London: Routledge. Akermann, Alice (1994) ‘Reconciliation as Peace-building Process in Postwar Europe’, Peace and Change, 19: 3 ( July): 229–250. Asher, David (2001) ‘Can Japan Become the “Great Britain of the Far East”?’ AsiaPacific Review, 8: 2 (November): 112–128. Baldwin, David (ed.) (1993) Neorealism and Neoliberalism: The Contemporary Debate, New York: Columbia University Press. Baron, Robert A. and Byrne, Donn (1997) Social Psychology, 8th edn, Boston MA: Allyn & Bacon. Burns, James MacGregor (1978) Leadership, New York: Harper Colophon. Cairns Group (n.d.) Mission statement. Available at: www.cairnsgroup.org/. Cha, Victor D. (1999) Alignment despite Antagonism, Stanford CA: Stanford University Press. Coleman, William D. and Porter, Tony (n.d.) ‘International Institutions, Globalization and Democracy: Assessing the Challenges’. Cooper, Andrew F., Higgott, Richard A. and Nossal, Kim Richard (1991) ‘Bound to follow? Leadership and Followership in the Gulf Conflict’, Political Science Quarterly, 106: 3 (Autumn): 391–410. Fearon, James D. (1998) ‘Bargaining, Enforcement, and International Cooperation’, International Organization, 52: 2 (Spring): 269–305. Feldman, Lily Garner (1993) ‘The Principle and Practice of “Reconciliation” in German Foreign Policy: Relations with France, Israel, Poland, and the Czech Republic’, International Affairs, 75: 2 (April): 333–356. Higgott, Richard and Cooper, Andrew F. (1990) ‘Middle Power Leadership and Coalition Building: Australia, the Cairns Group, and the Uruguay Round of Table Negotiations’, International Organization, 44: 4 (Autumn): 589–632. Jervis, Robert (1997) System Effects: Complexity in Political and Social Life, Princeton NJ: Princeton University Press. –––– (1999) ‘Realism, Neoliberalism, and Cooperation: Understanding the Debate’, International Security, 24: 1 (Summer): 42–63. Kane, John (2001) The Politics of Moral Capital, Cambridge: Cambridge University Press. Keohane, Robert O. (1984) After Hegemony: Cooperation and Discord in the World Political Economy, Princeton NJ: Princeton University Press. –––– and Nye, Joseph (2002) ‘The Club Model of Multilateral Cooperation and Problems of Democratic Legitimacy’, in Robert Keohane Power and Governance in a Partially Globalized World, London: Routledge: 219–244. Kim Mi-hui (2002) ‘Preparations Underway for Free Trade Agreement between Korea and China’, Korea Herald, 22 November. Lake, David A. (1993) ‘Leadership, Hegemony, and the International Economy: Naked Emperor or Tattered Monarch with Potential?’ International Studies Quarterly, 37: 459–489. Lander, Mark (2003) ‘Euro Beginning to Flex Its Economic Muscles’, New York Times, 18 May. Lee Yock Suan (2002) ‘ASEAN Tie-ups Offer US a Foothold in East Asia’, Straits Times, 1 November. Lianhe Zaobao (Singapore) (2002) ‘China and ASEAN May Scrap Tariffs on 600 Agricultural Products’.

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Moravcsik, Andrew (1991) ‘Negotiating the Single European Act: National Interests and Conventional Statecraft in the European Community’, International Organization, 45: 1 (Winter): 19–56. Munakata, Naoko (2002) ‘Whither East Asian Regional Integration?’, Brookings CNAPS Working Paper ( June). Neustadt, Richard (1960) Presidential Power, New York: John Wiley & Sons. Oye, Kenneth (ed.) (1986) Cooperation under Anarchy, Princeton NJ: Princeton University Press. Phillips, Ann L. (2001) ‘The Politics of Reconciliation Revisited: Germany and EastCentral Europe’, World Affairs, 163: 4 (Spring): 171–191. Radtke, Kurt W. (2001) ‘Strengthen Economic Cooperation “Asian style”’, Asahi Shimbun (English on-line edition), 30 November. Ravenhill, John (2002) ‘Three Bloc World? The New East Asian Regionalism’, International Relations of the Asia-Pacific, 2: 1 (April): 167–195. Sandholtz, Wayne (1993) ‘Institutions and Collective Action: The New Telecommunications in Western Europe’, World Politics, 45: 2 ( January): 242–270. Shorrock, Tim (2002) ‘East Asian Community Remains Elusive’, Asia Times (on-line edition), 5 February. Straits Times (2002) ‘East Asia Not Ready for Free Trade Zone: Mahathir’, 21 March. Stubbs, Richard (2002) ‘ASEAN plus Three: Emerging East Asian Regionalism?’ Asian Survey, 42: 3 (May/June): 440–455. Tang, Shiping (2001) ‘Japan’s Choice and the Future of East Asia’, China Economic Times, 20 July. Weber, Max (1947) The Theory of Social and Economic Organization, New York: Free Press. Xinhua News Agency (2002) ‘The First ASEAN-China Macroeconomic Forum Held in Kunming’, 26 October. Yeo, George (2001) ‘Watch China Grow and Hope America Will Stay’, International Herald Tribvne, 20 March. Young, Oran R. (1990) ‘The Politics of International Regime Formation: Managing Natural Resources and the Environment’, International Organization, 43: 3 (Summer): 349–375. –––– (1991) ‘Political Leadership and Regime Formation: On the Development of Institutions in International Society’, International Organization, 45: 3 (Summer): 281–308. Yukl, Gray A. (1994) Leadership in Organizations, 3rd edn, Englewood Cliffs NJ: Prentice-Hall.

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Part III

Economic and monetary cooperation and integration

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6

The origins, launching and consequences of ‘1992’ and the euro The politics of economic and monetary integration in Europe Jonathan Story

Introduction Following on the launch of the internal market programme in 1985, monetary union is the most far-reaching enterprise that the European Union (EU) has ever undertaken. The ambition to create a ‘common market’, one capital market and monetary union was present from the very start of the post-war history of European integration. But their achievement took much longer than their supporters expected. The key link between all three – the common or ‘internal’ market, one capital market and monetary union – is policy on the liberalization of capital movements. This was always the stumbling block on the road to monetary union, as illustrated by the history of three major attempts since 1957. The constant thread was the problem of reconciling different ideas and interests in a multinational society of states such as the EU. National economies must converge if the transition to a single monetary regime is to be successful. Whether monetary union is beneficial remains speculative until the experiment has been made and the currency has a history of at least a couple of decades – the time horizon required by the Deutsche Mark (DM), for example, to emerge as an international reserve currency.

History The Treaty of Rome, establishing the European Economic Community (EEC) in 1957, avoided the subject of monetary integration as too controversial. Instead, the chosen approach was to set up a customs union, which by dint of a ‘spillover effect’ would create conditions to integrate commodity as well as capital markets. An integrated market in turn could create demands for a single currency so that investors bore no currency or exchange rate risk and all firms would face equal conditions in their access to a common pool of savings. Monetary union, in turn, would require political integration, which would be possible only if the member states were prepared to abandon to a significant degree their separate

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macro-economic policies. But experience showed that the ‘spillover effect’ could also go into reverse (Schmitt 1968). Whenever monetary union hovered on the horizon, the temptation to turn back tended to grow, prompting a refusal or postponement of monetary union back to an explicit avowal of autonomous credit policies, to a rejection of the customs union as a goal and to possible retrenchment from freedom in product markets. Since its inception in 1958, the EU has moved uneasily along this spectrum between integration and the assertion of national identities. Member states retained their powers in the Treaty of Rome to ‘take the necessary protective measures’ in the event of a sudden crisis in their external accounts. But the Treaty required that member states act in the ‘common interest’ when formulating and executing exchange-rate policies. In particular, Articles 66 to 78 pledged member states to abolish restrictions on capital movements related to current payments only, while stipulating that member states were progressively to abolish ‘between themselves all restrictions on the movement of capital belonging to residents of the Community’. To this end, the authorities were to ‘endeavour to avoid’ introducing new exchange restrictions and to grant exchange permits as liberally as possible. This became more problematic as inflation rates edged upwards in the 1960s and the fixed exchange-rate arrangement based on the dollar, often referred to as the Bretton Woods system, began to unravel. In 1970, the Werner Plan proposed a three-stage move to monetary union, with a single currency, free capital movements, centralized EEC economic policy making and a European central bank. At their Paris summit in October 1972, the heads of government decided to aim for full European economic and monetary union by 1980. This meant that policies and performances among member states would have to ‘converge’ on a sustainable fixed or stable exchange rate regime. For an exchange rate between two currencies (such as the DM and the French franc) to be sustainable, there must be convergence in expected real interest rates, that is, in nominal interest rates and over the longer term in expected rates of inflation. This convergence can be brought about at any rates that are politically acceptable to participating countries. The credibility of the exchange-rate link in the eyes of the financial markets requires convergence to come sooner rather than later. In 1972, it was divergence that came sooner, prompting the member states to adopt a floating exchangerate regime, where the smaller countries pegged their currencies to the DM and sought to adjust their policies in line with Germany’s. Meanwhile, global markets confirmed the dollar’s status as the world currency and the US Federal Reserve as the world’s prime central bank. This did not preclude major subsequent swings in exchange rates, notably between the DM and the dollar – the two key currencies in the Euro-Atlantic area. Convergence under these conditions was asymmetrical, signifying the alignment of weaker currency country policies on those of the US and Germany.

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There were two further dimensions to the subsequent history of the internal market and monetary and exchange rate discussions in the EU: One was the more visible politics of the discussions among and within the member state governments and the other was the important developments in EU law, elaborated within the EU institutions, notably between the Court of Justice and the Commission. Which weighed most heavily in the final outcome is a matter of dispute between intergovernmentalists, for whom the decisive contributions originate in the politics of the states, and other scholars who emphasize the policy autonomy conferred on EU institutions by the treaties (see Moravcsik 1991 and Sandholtz 1993). What is less controversial is that the final outcomes, particularly the all-important steps taken to liberalize capital movements, would not have been what they were without a very close and intricate interplay between politics and law within the EU. Both fed into the politics of the EU’s ‘relaunch’ in 1985 and then into the complex package that led to the deal on monetary union, the key component of which was the way in which the member states negotiated their way toward liberalization of capital movements. The politics on monetary union then merged into the politics of German unification.1 The monetary deal was a key component of the security negotiations ongoing across the continent as the cold war structures sustaining the post-1945 European peace crumbled or were fundamentally transformed.

The development of markets and EU law The Single European Act of February 1986, which may be considered the catalyst for the internal market initiative, would not have been possible without prior developments in European law. The Commission’s June 1985 White Paper, Completing the Internal Market, had put forward a new strategy with regard to harmonization of laws and procedures. Rather than continue to rely on previous attempts to force harmonization of EU standards, the Commission adopted a new approach involving harmonization of only essential laws and regulations for goods and services. According to this approach, the harmonization of essential standards was to provide the basis for member states’ mutual recognition of the equivalence of each others’ laws, regulations and administrative practices that were not harmonized at the level of the EU. A corollary to mutual recognition was home country control, whereby the regulations, laws and practices of the home country were to be accepted as applying both to operations of corporate branches and to cross-border provision of services. The term mutual recognition had already been deployed in Article 57.1 of the Rome Treaty, with reference to professional qualifications. But the landmark case that enabled the Commission to elaborate the concept on the basis of a European Court of Justice decision was the ‘Cassis de Dijon’ case (European Court of Justice (ECJ) 1979; Common Market Law Reports

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1979). Cassis de Dijon, the French liqueur manufacturer, had been excluded from selling in Germany on the grounds that its alcoholic content was too low to be classified as liqueur under German law. The Court ruled that a member state may not apply national law to imported products that were lawfully produced and sold in other member states. The Court’s judgement was, in fact, cautious and subject to much legal debate (see Masclet 1980; Revue de Marché Commun 1980). A further judgement in June 1980 prompted the Commission to issue a statement to the member states in October whereby a product might be freely exported to another member state when it has been produced and commercialized in accordance with the principles and regulations of the exporting country. This principle found its way into the Single European Act (SEA), which stipulates that the Council ‘may decide that the provisions in force in a member state must be recognized as being equivalent to those applied by another member state’. The principle of mutual recognition implied a move to open markets across the EU. But in December 1986, the Court defended a state’s rights position in four notable insurance cases. As the Court stated, there existed in the field of insurance ‘imperative reasons relating to the public interest’ that may justify restrictions on the provisions of services. Indeed, the insurance judgements targeted the public interest as the key criterion for determining the legality of barriers to cross-border trade. They therefore touched on another principle that underpinned the Rome Treaty, namely that of non-discrimination on the basis of nationality. What this principle suggested was that firms from another member state would have the same opportunities as domestic counterparts with respect to host country laws and regulations. Non-discrimination implied that member states extend national treatment to firms such that they would face ‘laws, regulations and administrative practices . . . no less favourable than those accorded in the situation to domestic enterprises’.2 Such a definition of non-discrimination would have left 12 separate national markets with different rules and regulations, moderated in practice by the application of the principle of mutual recognition, whereby member states recognize each other’s laws and practices as equivalent to their own and thereby preclude the claim that doing things differently provides a legitimate reason for protection. The principle of mutual recognition helped to bridge the gap, but not to eliminate the tensions, between the two competing principles of national treatment and public interest. Up to 1981, the cross-border provision of services had been viewed as falling within the category of liberalizing capital movements. But an ECJ judgement of that year held that Article 67 for complete liberalization of capital movements was not inherent to the Treaty (i.e. directly applicable) and therefore had to be implemented by directive (Baché 1987). This opened the door to the preferences of member states being woven into the legislation, implying that liberalization

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of capital movements and the resulting EU financial ‘space’ – one of the keys to the internal market programme – would be a negotiated compromise between different and competing national policy communities and their preferences. Between 1988 and 1993, the member states negotiated their way through to a set of agreements that ensured that the EU would remain wide open to global markets, while many de facto powers remained in the hands of member states, notably protection of national ownership structures. The launch of the internal market programme was a necessary, but not sufficient cause, of monetary union.

The politics of intra-European exchange rates The story of convergence incorporates lessons about the asymmetrical relationship between Germany and France prior to the introduction of the euro. From 1973 on, the DM emerged as Europe’s key reserve and transactions currency. As the key currency country, Germany looked to its domestic monetary policy in the first instance, while all other countries derived their domestic monetary policies from the fixed character of their exchange rate relative to the key currency. If other countries, notably France, failed to follow the Bundesbank’s priorities, the Bundesbank faced a dilemma: if allowed to float freely, the DM became directly exposed to the fluctuations of the dollar. The growing lobby of German DM-bond holders were happy not to import inflation from European neighbours, which would have devalued their investments, but Germany’s equally powerful export lobby became concerned at the loss of price competitiveness of their goods on world markets. They preferred the DM to be sheltered from dollar movements in a stable exchange rate regime within the EU. The manner in which Germany managed the tension between the goals of maintaining price stability and a stable exchange rate complicated relations with inflation-prone neighbours. First, Germany’s combination of tight monetary policies and trade surpluses led to a steady revaluation of the DM. This provided an additional incentive for German manufacturers to move upmarket into higher value-added products, less price sensitive on international markets. German wage levels rose relative to others, thereby accentuating the importance of achieving high levels of productivity. Import prices exerted a stabilizing effect on the general level of prices. This was the reverse of the US-led world monetary regime of 1945–71, in which the US ran trade deficits and irrigated the world with dollars, thereby stimulating inflationary growth under a fixed exchange-rate regime. Second, the DM became a reserve currency. The Bundesbank thus had it all ways: it became Europe’s lead central bank; its large trade surpluses were neutralized as reserves accumulated; the Bundesbank only accepted dollars in reserves and reinvested them on US Treasury bond markets; the German government issued DM-bond debt to finance structural

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government deficits; and German diplomacy had funds to spare to grease the wheels of EU integration, while subsidizing the last years of the German Democratic Republic (GDR – former East Germany) and buying off the Soviet Union to make possible German reunification in 1989–90. The squeeze on France proved particularly severe. There were two aspects of this. First, French economic policy since the 1940s had followed a recurrent cycle of growth, inflation and devaluation, a pattern that France did not shake off until 1983. Second, alignment of French policy on German preferences for a hard currency meant readiness to reform labour market institutions according to liberal market prescriptions. For this, however, there was no national support. Rather, there has been consistent French support for the EU to develop an ‘economic government’ – shorthand for a sizeable EU counter-cyclical capability, financed either through taxation or through the bond markets. With sticky labour market institutions, France, as well as the EU, was and is a prime candidate for Keynesian capital-spending programmes. A crucial convergence of French and German interests on exchange rates had occurred in the autumn and winter of 1977–78, when a run on the dollar prompted a surge in the value of the DM, penalizing German exports. France, too, wanted more stable exchange-rate conditions, while moving to align monetary policy on German conditions. The European Monetary System (EMS), conceived as a Franco-German initiative in April 1978, was launched in March 1979. For president Giscard d’Estaing, the EMS served two key imperatives: one was to start aligning French economic policies more on those of the Federal Republic; the second was to confront any possible future left government in France with the pre-existing constraint of the EMS. The EMS effectively recreated a regional Bretton Woods system. Currency fluctuations were limited to 2.25 per cent in relation to a bilateral parity grid. The European Currency Unit (ECU) as a weighted basket of member country currencies was retained as an indicator of a currency’s margin from parity. Participating governments were to contribute 20 per cent of their gold and US dollar holdings to a European Monetary Cooperation Fund (FECOM). In exchange, they received ECU balances to support EMS parities. To this was added a fiscal transfer mechanism, designed to improve intra-EU payments imbalances and to facilitate payments adjustment. Unfortunately for Giscard d’Estaing’s second imperative, the German government, at the European Council meeting of Brussels in December 1980, took the opportunity of deteriorating economic conditions to have FECOM indefinitely delayed for a ‘more opportune moment’. In February 1981, the Bundesbank drove up interest rates to record heights while world savings flowed to the US to feed president Reagan’s military-spendinginduced boom. In March, Giscard d’Estaing lost the presidential elections to his rival, Mitterrand, who immediately engaged his government on a policy of reflation and nationalization. Three franc devaluations followed,

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consolidating the Bundesbank as Europe’s de facto, though not de jure, central bank. In March 1983, president Mitterrand opted for the franc’s stabilization within the EMS, rejecting counsel to move to national protectionism – the echo on the French left to the German left’s growing preference for national neutrality. Abandoning France’s go-it-alone policies meant aligning French economic policy preferences on those of the lead state, Germany, and in particular, on the interest-rate and exchangerate policies of the Bundesbank. This decision of March 1983 marks the key turning point in the history of monetary union. Thereafter, successive French governments singlemindedly pursued their objective in the EU to create a currency and monetary regime to counter the dollar’s hegemony and to loosen or terminate the very special relationship in currency management between the Bundesbank and the Federal Reserve. The single currency, the European Central Bank (ECB) and the single capital market would establish the EU as a counterweight to the US and – in the French government’s perspective – consolidate the European Council as the legitimate authority to shape macro-economic policy for the EU as a whole. France gains in that it makes economic and monetary policy on a footing of equality with Germany; Germany gains in that monetary union no longer exposes it to French resentment at the Bundesbank’s acquired position as de facto central bank for Europe. Monetary union is thus the EU’s answer to the re-emergence of an imbalance of power in Europe before and, even more so, after German unification.

From the freeing of capital movements to monetary union Other considerations contributed to the ‘relaunch’ of European integration in 1985. These included widespread concern at the EU’s poor economic performance, chronic unemployment, the surge in social security expenditures and labour legislation that raised the cost to employers of hiring labour, the decline in savings rates and a fall-off in investment rates. The tide of ideas away from government interventionism and towards freer markets was accompanied by changes in leadership among the member states and the elaboration of new policy concepts within EU institutions. The British government saw an opportunity to promote free-market ideals as a positive contribution to the common enterprise. The Netherlands stayed loyal to its traditional attachment to the ideal of European union. Belgium, Luxembourg and Italy looked for a more determined lead from Brussels as a means to promote reforms at home, while welcoming the culmination of Spain’s lengthy entry negotiations to the EU as providing a new impetus to Community affairs. But the major stimulus to Europe’s relaunch came from Germany and France. During its presidency of the EU in early 1983, chancellor Kohl’s

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new government in Bonn established its EU credentials at the Stuttgart European Council, where the heads of government subscribed to a Solemn Declaration on European Union, indicating an intention to extend EU deliberations into ‘the economic and political aspects of security’ as well as into the cultural and foreign policy areas. Bonn made the successful completion of the Spanish entry negotiations a precondition for the release of additional funds for the EU budget. The move underscored Germany’s status as Europe’s prime economic and political power. It obliged member states to speed agreement on control of farm surpluses, to conclude Spain’s EU entry negotiations in March 1985, and to win member-state support for the Commission’s internal market programme from which – it was supposed – Germany had most to gain. The internal market programme informed the Single European Act (SEA) amending the Rome Treaty, and the SEA was agreed at the Luxemburg European Council of February 1986. France’s finance minister, Jacques Delors, who had launched the French financial system on far-reaching reforms, took over the presidency of the European Commission in January 1985. The SEA was the common denominator uniting four interlinked sets of negotiations. The first set of negotiations was a commitment of the states to achieve ‘a progressive establishment of the internal market by December 31, 1992’. This meant the introduction of qualified majority voting in the Council of Ministers for legislation concerning the internal market, including financial services and capital markets. The extension of majority voting was balanced by retention of the veto in highly sensitive areas, such as the protection of savings by home country authorities. Meanwhile, the Dutch and the British cooperated closely with the Commission in promoting another round of trade negotiations in the GATT, finally agreed at Punta del Este, Uruguay, in September 1986. The EU-wide policy consensus on internal negotiations, as in the past, was intimately associated with global market opening initiatives. The second set of negotiations was about labour market reform. The British, with Irish and Italian backing, proposed an Action Programme for Employment and Growth, which championed the freeing of labour markets and stood in stark contrast to the Commission’s preferences for social protection. It was promptly scotched by an alliance comprising Commission president Delors, the Belgians, the French and the Germans. The long-term implications of this attempt to preserve existing social welfare policies while stimulating more open product and service markets has been to ensure very high rates of underemployment and unemployment, notably in the core EU states of France, Germany and Italy. The third set of negotiations was about movement to monetary union. President Mitterrand agreed to liberalize capital movements in exchange for chancellor Kohl’s recognition of monetary union as a goal. This is where prime minister Thatcher parted company with her French and German counterparts. Kohl was ready to discuss monetary union. Thatcher

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was adamantly against it. The SEA noted that the Paris summit of October 1972 had approved ‘the objective of the progressive realization of economic and monetary union’ and it alluded to the Rome Treaty’s Article 102a, referring to ‘further development in the field of economic and monetary policy’. The fourth, and crucial, set of negotiations was over liberalization of capital movements. It was crucial because without accord being reached on the liberalization of capital movements, the linkages between the other sets of negotiations would not have occurred as they did. For Delors, liberalization of capital movements was a first step towards legislating the rules for an internal EU market, distinct from ongoing global market integration. His prime concern after the signing of the SEA in early 1986 was to implement the Rome Treaty with regard to liberalization of capital movements. Bonn and London had made clear that without an end to capital controls there would be no internal market and little prospect for further cooperation in the monetary field. In May 1986 the Commission duly presented its two-stage programme for a gradual end to capital controls. In the first stage, France, Ireland and Italy were to conform to existing rules by 1987. Long-term commercial credits, securities transactions and collective investments were to be completely liberalized. In addition, the first stage entailed modification of the directives of 1960 and 1962 on the liberalization of capital movements, measures that were adopted by the Council in November 1986. Trade in securities was thereby eased, along with access to stock markets. The second stage, presented by Delors in October 1987, involved the implementation of Article 67 of the Rome Treaty on ending capital controls. Putting an end to capital controls clearly made currencies more susceptible to the collective judgements of financial markets and revived old feuds in the EU between free traders and protagonists of a single internal market distinguishable from world markets. There was a prevalent concern that without convergence on rigorous standards of supervision in financial markets, initial disparities would generate competition between financial market systems and evasive behaviour by market participants (Dini 1986). As the May 1986 Commission paper on capital movements indicated, the objective beyond the establishment of a financial-free trade zone was to establish an EU-wide integrated financial space. This was to be achieved through minimum common rules to protect users of financial services. This entailed the elimination of remaining restrictions on capital flows, alongside agreement on the new rules in the EU game foreseen in the White Paper and the SEA. An end to capital controls also exposed major differences among national tax regimes. This was a particularly awkward area for the Commission to address, since tax measures were subject to unanimous voting and therefore could be vetoed by individual member states. Not surprisingly, a package deal between the three major member states, France, the

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UK and Germany, proved elusive. Repeatedly, Commission officials also appealed to the British government to bring the pound sterling into the exchange-rate mechanism. But prime minister Thatcher remained adamantly opposed. Frequent references were also made to developing the ECU as a medium of exchange in the European Communities (EC). But the Bundesbank, charged with management of Europe’s key currency, had outlawed the ECU’s use in Germany and used only dollars to intervene on foreign exchange markets. France agreed to end all capital controls, linking the move in June 1988 to ‘the prospect’, in Delors’ words, ‘of a common money and a common central bank’ (as quoted in Le Monde 1988). Liberalization of capital movements entailed a compromise between the German and British positions of markets open to the world, and the French aspiration to create a more exclusive internal financial space, subject to EC law and policy and distinct from world markets. Whereas the French position emphasized the ‘specificity’ of the EU financial space, German and British support for the internal market was only to be won by full acceptance of the principle of capital liberalization erga omnes (Lelakis 1988). The text of the corresponding legislation was less assertive. The June 1988 directive, submitted by the Commission to the Council, stipulated that the condition of erga omnes did not prejudice ‘the application, towards third countries, of national rules and Community law with respect to conditions of reciprocity’ regarding access to financial markets. Equally, member states were only beholden to consult on measures taken to deal with disruptive capital flows. Repeal of a 1972 directive, which had been adopted at Germany’s behest to enable unilateral defensive measures to be taken against financial inflows, did not abrogate de facto national powers of self-defence in the event of financial crisis. The June 1988 directive also confirmed two principles: one of complete, unconditional and free movement of capital and the other of nondiscrimination based on nationality. But here too, due allowance was made for national susceptibilities. For reasons of monetary policy, the German government was determined to preserve a firewall between the domestic monetary base and short-term capital flows. ‘In certain cases’, the Central Bank Governors opined, ‘limitations on access to the national market should be allowed to be maintained for legitimate motivations of monetary regulation’ (Europolitique 1988). In other words, where legitimate national interests were at stake, they took precedence over EU cooperation. Similarly, the directive stipulated that all legislation designed to encourage national savings that afforded privileges to domestic over foreign securities had to be ended. This did not, however, prevent governments from encouraging domestic investors to buy national securities. The ‘second stage’ in the liberalization of capital movements, ending all restrictions on short-term capital movements, was voted by the Council in June 1988, enabling EU nationals to open a bank account in other

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member states and to trade in stocks and shares. The measure was to come into effect in June 1990, with escape clauses and delays for Ireland and Spain until 1993 and Portugal and Greece until 1995. Freedom of capital movements was seen as one of the main conditions for the creation of the internal market, in that its achievement would assure ‘an optimal allocation of European savings’. The directive was the central measure that Delors used to link the internal market to all aspects of the broader EU programme, especially the achievement of monetary union.

German unity and monetary union It is important in the period since 1973 to set Franco-German relations, which have been central to the history of European economic and monetary integration, in the context both of DM-dollar and East-West relations. In the early 1970s, the German government, with reluctant US and French support, launched a policy of détente with the Communist party states, designed to reduce tensions between the two Germanies. But in 1977, the US administration announced the possible installation of cruise missiles in Western Europe, while the broader European left picked up the cause of hostility to the nuclear diplomacy of both the US and the Soviet Union. East-West tensions were accentuated in December 1979, when the NATO allies decided to counter the Soviet build-up in long-range and mediumrange nuclear weapons and to install nuclear weapons in the Federal Republic and elsewhere in Western Europe as a signal to their populations of the indivisibility of their security commitments. A few days later, the Soviet Union invaded Afghanistan. These events prompted formation of a ‘peace’ movement in Western Europe, at the same time as the party states in Eastern Europe cracked down on human rights initiatives there. The Western, particularly the German, peace movement demanded an end to the nuclear stand-off in Central Europe, which had helped to freeze East-West divisions since the late 1940s, while the human rights activists in Eastern Europe, particularly in Poland, in effect militated for regime change. Germany lay at the seismic centre of these two trends. Chancellor Kohl responded to the challenge by welcoming the installation of medium-range missiles on German soil. French president Mitterrand, elected in 1981, backed Kohl, to the dismay of the German Social Democrats and militants in the peace movement, who wanted the Federal Republic to move to neutrality between East and West. Keeping the Federal Republic firmly embedded in the Atlantic alliance and the EU had been a constant of French foreign policy since the late 1940s. The counterpart to this policy of binding Germany westwards was to bind France to the Federal Republic through the institutions of the EU. That required Mitterrand to distance himself from his initial policies of nationalization, reflation and devaluations, undertaken in the years 1981–83.

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As France unfurled its policy to tie the Federal Republic into a strengthened EU, Gorbachev’s election as Secretary General of the Communist Party of the Soviet Union (CPSU) in March 1985 was transforming Germany’s position in Central Europe. The 1980s heralded a sharply modified world order. The rapid emergence of the dynamic economies in the Asia Pacific, led by Japan, prompted a ‘new thinking’ in Washington and Moscow on the need to restructure world politics and to release resources from the supply of military hardware to the production of civilian goods and services.3 Paris, London and Bonn had reinforced defence ties in 1986–87, as the two world powers edged towards agreement on partial nuclear disarmament. Gorbachev’s proposals in February 1987 to dismantle intermediate-range missiles in Europe as separate and distinct from discussions on the US and Soviet strategic arsenals were listened to attentively in Washington. Pressure to agree was brought to bear on the NATO allies, particularly Germany. Kohl reluctantly conceded. Washington then asked Bonn to renounce partial control of short-range nuclear weapons based in Germany, clearing the way for the Washington Treaty of December 1987 between Gorbachev and president Reagan. The Treaty meant the removal of the intermediate-range nuclear weapons that the Soviet Union feared, while leaving in place ‘battlefield’ nuclear weapons for eventual use on German soil. The Washington Treaty opened the way for a removal of intermediaterange nuclear weapons installed in Europe in the mid-1980s. The treaty and the accelerating decompression of Communist rule in Central-Eastern Europe transformed Germany’s international context. As the Bavarian leader, Franz-Josef Strauss, wrote, Kohl’s August 1987 decision to abandon the Pershing IA missiles deprived Germany in effect of nuclear cover and reduced the Bundeswehr to the status of a colonial army (Strauss 1990: 435).4 Whether or not the judgement was deserved, it reflected a weakening of Germany’s commitment to the formulas for Western security devised in the Atlantic alliance during the 1960s. The Chirac government revived the dormant Western European Union (WEU) in October 1987, when its member states reiterated the principles of NATO strategy predicated on nuclear deterrence. These were promptly undermined by the Washington Treaty. Paris then revived the military provisions in the 1963 FrancoGerman Treaty and won the Kohl government’s accord to create a 4,200strong Franco-German brigade. An untried brigade, however, was no substitute for US nuclear coverage of Germany. Equally, Paris was concerned that the Federal Republic talked European integration but practised economic nationalism and that the heart of national economic policy was the Bundesbank. To counter Germany’s primacy in shaping broader European economic policy through the Bundesbank’s stranglehold over intra-European exchange rates and monetary policy, Paris, Rome and London turned to the United States to prod Germany into a more accommodating macro-economic policy. At a

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meeting of the G5 finance ministers at the New York Plaza Hotel in September 1985, the second Reagan administration sought the cooperation of the other industrial countries in order to jointly manage the dollar downwards. There ensued a general lowering of interest rates, a surge in the yen and a decline of the dollar against the DM. At a meeting in the Louvre in February 1987, the leading financial powers struck a deal. West Germany and Japan pledged to boost growth, while the United States promised to cut its budget deficit and to stop ‘talking the dollar down’ (Financial Times 1987). Within the EU, in the Basel-Nyborg Agreements of September 1987 a partial accord was reached whereby the EU central banks were to lend to each other in order to defend agreed currency values before reaching the 2.25 per cent mandatory intervention limit under the Exchange Rate Mechanism (ERM). The Bundesbank initially denied any obligation. But the world equity market crash of 19 October 1987 accompanied by angry exchanges between Bonn and Washington exposed the Federal Republic’s isolation, counselling closer cooperation with ERM partners. France, too, was affected by the crash. The government suspended trading in equities and its privatization programme ground to a halt. Fiscal restrictions in France were slightly eased and Germany’s monetary targets were exceeded. Bonn and Paris cooperated through the financial disorders of November 1987. At the Franco-German summit that month, the two governments agreed to set up an Economic and Financial Council within the bounds of the 1963 Franco-German Treaty. The Council was launched in January 1988. It was to meet three times a year and be attended by the respective economics and finance ministers as well as the two central bank governors. The Bundesbank immediately expressed reservations about an initiative that threatened to put the Bundesbank in a minority and subject it to the authority of the finance ministries. When public discussion on EMU was renewed in 1987, three key ideas circulated. Mooted in a memorandum by French finance minister Balladur, the first notion focused on the inequity of Germany setting monetary policy for others. The French Finance Ministry’s proposal of early 1988 for a common currency in essence aimed to have the Bundesbank hold ECUs rather than US dollars as counterpart to German external surpluses and use them to subscribe to French Treasury bonds. It provided the thrust for the creation of the Franco-German Economic and Financial Council in parallel to the Defence and Security Council. The second proposal, advanced in Rome, was for all EU currencies to join the ERM and for a European Central Bank (ECB) to be set up as the central coordinator for a European currency policy.5 In this way, the German economy would not continue to make ‘structural gains’ through the DM’s undervaluation, while Britain would not be able to gain from capital-market liberalization ‘without being subject to the restrictions [membership in the ERM] placed

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on domestic economic policies’ (Financial Times 1988). The third proposal – from the German Cabinet – was for a single currency, entailing free capital movement, priority for price stability, political independence of the ECB, no inflationary financing of government deficits, and a federal political system. The European Council at Hanover in June 1988 created a special committee, chaired by Delors and including all EU central bank governors, to investigate ways of achieving economic and monetary union. The committee’s report in spring 1989 reflected its composition. It proposed a programme for the creation of EMU (Economic and Monetary Union) through irrevocably fixed exchange rates, a single European currency, a common monetary policy under the direction of a European central bank and rules to constrain national governments with regard to budgets. The Bundesbank’s reticence on EMU was recorded in the reference to the project’s having ‘potential’. The report sketched three stages to monetary union. Capital movements were to be freed on 1 July 1990. The second stage would start at an unspecified date, once a new treaty had established the ECB and precise, but not binding, rules on the size of government deficits. The third stage would start once the mechanisms for the internal market were in place. Differences between Paris and Bonn were resolved by a successful Franco-German summit that set the agenda for the EU’s Strasbourg summit of 8–9 December 1989. At the summit, the EU heads of state and government reiterated support for the German people to ‘re-find unity through free self-determination’ and Bonn concurred in Paris’s request that a new intergovernmental conference be held prior to the German elections in 1990 with a view to incorporating monetary union into the European treaties.6 Germany’s Western orientation seemed confirmed when Kohl stated in Paris in January 1990 that ‘our common aim must be to build up the EU as the kernel of a future European peace order’ (Le Monde 1990). German unification was completed on 3 October 1990 ahead of the December general election. On EMU, Kohl supported the Bundesbank’s terms, presented to the other governments as ‘non-negotiable’ demands: political union; price stability; completion of the internal market; political independence of the ECB and member banks; and an ECB monopoly on all necessary monetary policy instruments. Prior to union, price levels had to converge on a stable and low norm. There was to be no inflationary financing of government deficits and there were to be binding rules on government spending. The Maastricht Treaty, signed on 7 February 1992, incorporated a German programme for a single currency. France accepted these terms and the German government signed away the DM. During the transition, member states were to strive to achieve the convergence criteria, defined in a treaty protocol. These were essentially financial: low inflation stable

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interest rates; stable currencies in the ERM; and moderate government deficits and public debt. A European Monetary Institute (EMI) was to be created in 1994 with responsibility ‘to coordinate monetary policies’. The third stage would start in January 1999. If enough states were not ready by 1996, the EU would decide in 1998 and by majority vote which countries were prepared. Exchange rates were to be fixed and the new currency was to be introduced first on the wholesale markets in 1999 and then by 2002 on retail markets. Public opinions and the Bundesbank were less than enthusiastic about the Treaty. World financial markets doubted the credibility of existing exchange rates and challenged them repeatedly in the course of 1992–93. Germany won support to locate the ECB in Frankfurt, to call the common currency the ‘euro’ over the French preference for ‘ecu’ and to introduce a ‘stability pact’, whereby governments running excessive deficits would be fined. The Bundesbank insisted that the ECB would have no obligation to intervene on behalf of weak currencies – the burden would be on the weak currency countries. But France continued to champion the ECB’s political accountability to the European Council, backed Italian and Spanish membership in monetary union to ensure a pro-growth lobby among finance ministries and agreed to tighten joint supervision of exchange-rate policies – an ‘ERM-2’, whereby ‘out’ currencies would move within the prevailing 15 per cent bands in a grid hinged on the euro. The UK parliament ratified the Maastricht Treaty, but the UK ‘opted out’ of monetary union and, in 1997, the new Labour government signed up to the EU’s social policy. The British chancellor of the exchequer was reminded that the pound sterling would have to move within the ERM-2 fluctuation bands for two and a half years before Britain could adopt the euro, while candidate countries from Central and Eastern Europe had to expect pressures to join a tight exchange-rate regime before they had completed their transformation into market economies. Similarly, the core countries’ interest in roping more currencies into the new regime was not unrelated to whether an additional member state’s reputation on world currency markets would hold their harder currencies down against the dollar. The incorporation of Greece – a chronic weak currency country – into EMU in 2001 may be explained in that light. For all the hesitations and after-thoughts in the run-up to the euro’s introduction, there was no going back. After the ratification of the Maastricht Treaty in 1992, despite the monetary crises that hit Europe in 1992 and 1993, the timetable for the introduction of the euro – from the agreement in 1998 over the first 11 member states to the introduction of the currency in wholesale markets in 1999 and the changeover from national currencies on 1 January 2002 – was kept. Commitment to monetary union, in the terminology of the Maastricht Treaty, was ‘irrevocable’. Monetary union ranks as one of the great victories of French diplomacy (see Story 2000).

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Into the first decade of the new millennium Now that the single currency had been born, contrary to the expectations of many, it would have been tempting to argue that the pre-history of the euro was irrelevant or ‘bunk’, as Henry Ford I famously stated about history. But this would be an error. There were many ‘carry-overs’ into the new currency. Not the least among these was the German ambition to use the euro as a step to a federal Europe, modelled on domestic German legal and political traditions. In presenting his government’s strategy for Germany’s six months’ tenure of the presidency of the EU in January 1999, foreign minister Joschka Fischer celebrated the euro’s launch, but added that ‘the introduction of a common currency is not primarily an economic, but rather a sovereign, and thus eminently political act’. Despite the efforts of the German government to press ahead for a federal design for the EU with its allies around the EU member states, other member states showed little sign of abandoning their state powers. The German government’s intent was to flank monetary with political union. But having secured representation on the ECB, and in the key committees supporting the work of the Finance Council, the states retained their veto on foreign and security policy, on taxation, and on much else affecting the workings of the internal market, such as public procurement, transport, culture and education. An EU of states was further strengthened by successive rounds of enlargement, first with the expansion of membership to Austria, Finland and Sweden to an EU of 15 in 1995 and then to an EU of 25 in 2004. The euro was launched as an electronic currency with 11 member states on 1 January 1999 and became legal tender on 1 January 2002. The Frankfurt-based ECB is the institutional heart of economic and monetary union. Unlike the US Federal Reserve and the Bundesbank, its sole mandate is to maintain price stability. There is no mention in the Maastricht Treaty of it having to cooperate with the government(s) on economic policy. It has 500 staff and its Directorate was headed initially by the former Dutch central bank president, Wim Duisenberg. The choice of Duisenberg was, however, vitiated by the deep-rooted European politics of prestige: French president Chirac insisted that Duisenberg sit out only half his term and make way for the then governor of the French central bank, Trichet. The ECB is charged with making EU-wide policy and developing relations with the rest of the world. It must decide on the mechanics of monetary policy and has adopted a pragmatic approach in the ongoing debate about whether to adopt monetary targeting (the Bundesbank’s preferred method since 1975 to serve as a guide to employers and trade unions during wage negotiations) or inflation targeting (the preferred method of the Bank of England). The ECB has expressed hostility to target foreign exchange rates between the euro, the US dollar or the yen. A large, open

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economy such as the EU’s – it was argued – need not focus on the exchange rate to the same extent as smaller economies, such as the UK. Power in the EU’s new monetary regime lies in the European System of Central Banks (ESCB), made up of not only the ECB but also (after Greece’s entry) the 12 national banks. The national central banks play a central role in the ECB’s governing council in Frankfurt and the monetary operations through which the bank carries out its policy. Together they employ some 60,000 staff. They are not subsidiaries of the ECB, as is the case of the Federal Reserve System in the US. They are its shareholders. The six members of the ECB’s executive board who serve on the ECB governing council are outnumbered by the 12 national governors. If the number of participants increases, the national bank governors will form a still larger majority. In addition, the national central banks are in charge of operational aspects of monetary policy, including regular money market operations through which central banks inject liquidity into the financial system. Frankfurt wrested back the DM-bond market from London to back the growth a large and liquid euro-bond market, but the beneficiary of the euro in the battle for dominance among financial centres turned out to be London, and the losers the smaller financial centres, including Paris and Frankfurt.

The meaning of monetary union As indicated above, monetary union is regarded by many as an integral part of the EU’s political development and a logical extension of the process of economic integration. At its most fundamental level, of course, its aim is to eliminate national currencies and exchange rates among the participating countries. Monetary union thus eliminates the cross-border transaction costs that arise when payments are made between buyers and sellers in two or more currencies. This reinforces a single market for goods and services, promotes a more market-based allocation of resources, and contributes greatly to synchronize trade cycles. Consumers benefit as prices across the EU become more comparable in one currency. Smaller companies, which do not have ready access to hedging facilities on futures markets, will find it easier to serve an EU-wide market. These expected benefits of monetary union have not been realized as much as some had hoped. Without any doubt, the ECB’s policy of holding interest rates low, combined with the unexpected initial downgrading of the euro relative to the dollar, yen and pound sterling by the foreign exchange markets, helped to stimulate growth after 1999. The euro also fulfilled the expectations of its two ancestors, the former German chancellor Helmut Schmidt and ex-French president Giscard d’Estaing to form a ‘zone of monetary stability’ in Europe, shielded from the movements of the dollar. Corporate investors within the euro zone now had a stable and predictable business environment in which to plan for the future –

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and on a continental scale. These two statesmen had also been concerned at the unipolarity of the global financial system, structured as it was around the dollar. With the euro, the world’s investors had an alternative to a dollar placement, which was that much more risky in the light of the rapid escalation of US foreign debt. The euro quickly became a prime issuing currency in the bond markets, with the US dollar and euro each accounting for 45 per cent of bond issues and the pound sterling for the remaining 10 per cent. Upward pressure on the euro in 2003–04 hurt the competitiveness of European-produced products on globalized markets. But the fundamental reservations about the euro’s future relative to the dollar were rooted in politics: the adoption of the euro created a structure of incentives to move to an integrated polity and economy, while the mentalities and inheritances of European peoples, regions and states remained extremely diverse. The euro abolished 12 national currencies, but it did not abolish 12 political systems. It created one capital market, but did not end the existence of 12 different financial systems. This was especially the case for France and Germany. By contrast, the other major European economy – the UK – showed robust growth and sharply falling unemployment rates, while EU money market operations concentrated in London, which continued to prosper as the EU’s prime financial centre. Ireland, Finland, Denmark, Sweden, the Netherlands, Belgium, Luxembourg and Spain also turned in robust economic performances. With the UK, Denmark and Sweden not in monetary union but prospering outside, and Ireland, Finland and the Netherlands in monetary union and growing robustly, the focus of attention turned to the big countries of Euroland: were the governments of Germany, France and Italy capable of implementing the market-friendly reforms needed for them to benefit by monetary union? One of the major benefits of monetary union was the creation of a unified market for money and capital, comparable in size to that of the US. Such a market contributes to the optimal allocation of capital on an EU-wide basis of the underlying risks and returns. It helps raise the rate of savings and investment and offers borrowers a lower cost of capital and savers a high rate of return. By continually feeding capital to viable industries and denying it to industries that have lost their competitive advantage at global market prices, a single capital market helps accelerate the rate of technological change and other determinants of economic growth. Investors request greater accountability of managers, encouraging the growth of a market in corporate assets. All of these factors have been at work in the EU, greatly strengthening the power of management over workforces. Workforces, though, have votes and have clearly cast them in ways to remind incumbent governments that promotion of market-friendly policies is not readily converted into electoral success. Not surprisingly, one casualty has been the Stability Pact.

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The Stability Pact, negotiated in the course of 1995–96, illustrated the depth of German anxieties at surrendering the DM for an untried currency in the company of France and Italy with their inflation-rich histories. The Stability Pact sought to impose a legal constraint on member states’ budgetary policies after the euro’s introduction. The idea was that profligate governments would face two types of punishment. One was expected to come through the market, given that all debt is evaluated in terms of potential default risk, which in turn is reflected in the interest rates. In addition, profligate governments would face treaty-based penalties for exceeding the 3 per cent of GDP (gross domestic product) budget deficit limit as well as bond markets demanding prompt corrective action signalled by interest-rate changes and/or the success or failure of new issues. But the French emphasis on the European Council as the ultimate arbiter of economic policy indicated that such a legal constraint was open to political interpretation. How political was soon revealed when, once the euro was introduced, the Commission lectured Ireland and Portugal, two small and peripheral member states, on allowing their deficits to exceed the 3 per cent of GDP rule. Ireland avoided being placed in the Commission’s dock, but Portugal became the first euro-zone nation to breach the Stability Pact after Lisbon produced a public deficit of 4.1 per cent of GDP in 2001. Lisbon duly pushed through unpopular measures, including a rise in the sales tax, to cut the deficit to 2.7 per cent in 2002. Thereupon, Germany and France, the two largest euro-area economies, breached the 3 per cent limit for four years in a row. At a meeting in November 2003, EU finance ministers effectively suspended the EU’s budget rules by rebuffing a call by the Commission to bring their deficits back under the limit. Indeed, half of the 12 countries using the euro – Germany, France, Italy, the Netherlands, Portugal and Greece – which together accounted for 80 per cent of the euro-area economy, were in breach of these budget rules in 2004. Clearly, rules designed for Italy and applicable to small countries could not be applied to France and Germany. Another major benefit of monetary union was the incentive provided to financial intermediaries to compete in a highly liquid and contestable market, transformed by the conversion of national bond and equity markets to euros and by EU legislation on financial services. This opened new sources of finance for corporations, many of which were previously limited to their own narrow national capital markets. Nonetheless, national crossshareholdings and other protective mechanisms to keep corporate ownership in national hands remained widespread after the euro’s introduction. The single capital market had not abolished the European states’ inherited reflexes to protect their national champions, despite the fact that 16 per cent of shares listed on the German Stock Exchange and up to 40 per cent of those listed at the Paris Stock Exchange were in the hands of foreign investors. France’s financial establishment could not stop worrying about the outcome of BNP’s bids for Société Générale and Paribas or at

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ING’s bid for the French bank CCF. The Italian investment bank, Mediobanca, showed how the euro-capital market could be used to protect a national champion such as Telecom Italia from Deutsche Telekom’s unwelcome grasp and keep it in the hands of another Italian national champion, Olivetti. The biggest shock came when a blue-chip German corporation, Mannesmann, with 60 per cent of its shares held by shareholders abroad, faced a successful takeover in 2000 by Vodafone, the British mobile communications giant. German business responded by multiplying defence mechanisms against future takeovers, while Berlin downed the directive on takeovers proposed by the Commission, with the eager support of Paris and Stockholm. The Wallenberg family, for instance, owns only 7 per cent of the shares in the telecommunication firm, Ericsson, yet controls the company, because one class of shares carries 1,000 times the voting rights of another class. If national governments continued to ride to the defence of national capital, they also sought to protect national social policies, as if nothing had changed. Monetary union had significant implications for industrial and labour market policies. The most significant related to the greater fluidity of capital and the increased pressure of industrial adjustment on firms, both of which required much greater occupational and geographical mobility of the labour force. But intra-European labour mobility was marginal and labour market institutions and attitudes remained national. Indeed, rather than opening up labour markets by promoting equivalence of training diplomas, transferability of pensions and flexible housing markets, and easing job security regulations, the political trends in the early years of the euro’s existence were towards more, not less, national protectionism. The French government introduced a 35-hour week for workers, with the same pay as if they worked 39 hours – thereby increasing holidays over the year by six weeks, as well as hugely raising wage costs – while the German government extended no-firing policies in Germany to firms employing no more than five people. Unemployment in the EU is around 10 per cent, but in the poorer peripheral areas, such as Spanish Andalucia or Italian Sicily, the figures are at least 30 per cent. In France, Spain and Italy, about a quarter of under-25-year-olds are unemployed. Legislation notoriously defends workers in work rather than being predicated on the prior principle that all citizens should have ready access to work. Because labour markets in the major EU countries are sticky and their reform, albeit necessary, remains very hazardous terrain for ambitious politicians, the EU can promote growth only by a policy combining lower interest rates and low exchange rates. Policies now feature low interest rates and bloated budgets, alongside rigid labour markets in France, Germany and Italy and a high exchange rate. Member states, though, have worked their way through to an agreement to exchange information about the income deposited in financial institutions operating in their

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territories. Many member states nonetheless do not wish to go as far as the UK in liberalizing financial and labour markets. Yet the fundamental reason why British public opinion is sceptical about ‘Euroland’ is the gap that it perceives between the continental EU language of ‘solidarity’ and the reality, especially as evidenced in the dramatic unemployment or underemployment figures in Italy, France and Germany. So where do Europeans go from here? EMU implies that there is no option other than to move as rapidly as possible to a liberal market settlement, which involves the restructuring of national welfare and worker participation policies. For all the talk of progress, the reality is that there has not been a move to a liberal market settlement in the euro zone, where various types of national corporatism continue to flourish. The fundamental deficiency in implementing the euro is that product, labour and financial markets have not been liberalized to the extent required in a monetary union and for them to operate at optimal efficiency. And they have not been liberalized because there is no consent for liberalization in the major member states. The euro was launched as a top-down project, led in particular by France and designed to prevent the consolidation of German financial primacy. But it can survive only if the ideological battle to ensure bottom-up support for a liberal market society is waged and won.

Notes 1 2 3 4 5

6

There is a huge literature on the run-up to monetary union and the negotiations surrounding the initiative. A key work is that of Dyson and Featherstone (1999). Definition given by the Organization for Economic Cooperation and Development (OECD) in its National Treatment Instrument. See, for the general argument as applied to the big powers, Kennedy 1988. On high technology as a key consideration for perestroika, see Goldman 1987. For US-Japan trade relations, see Prestowitz 1989. On this issue, see also Joseph Rovan’s introduction to Kohl 1990: 32. Italian financial circles were generally sceptical as to the efficacy of supposedly ‘spontaneous’ mechanisms leading to monetary union. Free capital movements would disrupt the EMS, given different inflation rates between European currencies. See de Cecco and Giovannini 1989. ‘Les Douze acceptent que le peuple allemand retrouve son identité’ (Le Monde 1989). No date was named for completion of monetary union, reflecting Kohl’s reticence and Thatcher’s opposition.

References Baché, Jean Claude (1987) ‘La Libération des Mouvements de Capitaux et l’Intégration Financière de la Communauté’, Revue du Marché Commun, 304, February. Common Market Law Reports (1979) no. 494. de Cecco, Marcello and Giovannini, Alberto (1989) A European Central Bank?, Cambridge: Cambridge University Press.

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Dini, Lamberto (1986) ‘Towards a European Integrated Financial Market’, Banca Nazionale del Lavoro Quarterly Review, 159. Dyson, Kenneth and Featherstone, Kevin (1999) The Road to Maastricht: Negotiating Economic and Monetary Union, Oxford: Oxford University Press. European Court of Justice (ECJ) (1979) Rewe-Zentral AG v. Bundesmonopolverwaltung für Branntwein (Cassis de Dijon). Case 120/78. Europolitique (1988) no. 1401, 30 April. Financial Times (1987) issue of 23 February. Financial Times (1988) issue of 25 February. Goldman, Marshall (1987) Economic Reform in the Age of High Technology, New York: Norton. Kennedy, Paul (1988) The Rise and Decline of Great Powers, New York: Random House. Kohl, Helmut (1990) L’Europe est notre destin, Paris: Editions de Fallois. Lelakis, Vassili (1988) ‘La Libération Complète des Mouvements de Capitaux au Sein de la Communauté’, Revue du Marché Commun, 320 (September-October). Le Monde (1988) issue of 15 June. Le Monde (1989) issue of 10–11 December. Le Monde (1990) issue of 19 January. Masclet, Jean Claude (1980) ‘Les Articles 30, 36 et 100 du Traité CEE a la Lumière de l’Arret “Cassis de Dijon”. Cour de Justice des CEE, 20 Février 1979’, Revue Trimestrielle de Droit Européen, 4: 611–634. Moravcsik, Andrew (1991) ‘Negotiating the Single European Act: National Interests and Conventional Statecraft in the European Community’, International Organization, 45: 1 (Winter): 19–56. Prestowitz, Clyde (1987) Trading Places, New York: Basic Books. Revue du Marché Commun (1980) ‘L’Arret Cassis de Dijon. Une nouvelle Approche Pour la Réalisation et le Bon Fonctionnement du Marché Intérieur’, 241. Sandholtz, Wayne (1993) ‘Choosing Union: Monetary Politics and Maastricht’, International Organization, 47: 1 (Winter): 1–39. Schmitt, Hans O. (1968) ‘Capital Markets and the Unification of Europe’, World Politics, 20 ( January): 228–244. Story, Jonathan (2000) ‘What the Euro has Wrought’, Wall Street Journal, 8 February. Strauss, Franz-Josef (1990) Die Erinnerungen, Berlin: Siedler Verlag.

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7

The Chiang Mai Initiative and the prospects for closer monetary integration in East Asia Natasha Hamilton-Hart

In May 2000 the finance ministers of ASEAN, Japan, China and Korea announced that they had agreed to develop a network of currency swap and repurchase agreements, collectively known as the Chiang Mai Initiative (CMI). As a result of negotiations over the next three years, total funds potentially available under this initiative amounted to $36.5 billion as of December 2003. The significance of this process remains contested. Do regional liquidity facilities under the CMI amount to a significant step towards enhancing regional financial stability? Do they mark a move towards greater regional independence from global crisis management institutions dominated by the US? Is the CMI a precursor to monetary cooperation in the region? This chapter examines these questions. The following sections review the events leading up to and surrounding the CMI, discuss the significance of the CMI and place monetary cooperation in the context of trade and economic integration initiatives. The chapter concludes with an assessment of the prospects for closer monetary integration in East Asia, arguing that political issues are more likely to be significant obstacles to cooperation than economic differences, but monetary cooperation could nonetheless develop further in the future.

Background to the Chiang Mai Initiative The immediate background to the CMI was the Asian financial crisis of 1997–98: the unprecedented wave of currency and financial instability that spread across much of the region and resulted in severe economic contractions in several countries. Not only did the crisis expose the vulnerability of regional countries to sudden reversals in investor sentiment, it also raised a number of problematic issues in a region that had until so recently been fêted for its rapid growth, high levels of investment and export prowess.1 First, the crisis underlined the significant degree of interdependence that had been created among regional economies. Investor perceptions of regional similarities contributed to elements of contagion as the currency crisis spread out from Thailand, and real interdependence in the form of trade and investment links meant that many countries were sensitive to the subsequent economic contractions experienced by their neighbours.

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Second, the crisis demonstrated that despite shared vulnerabilities and interests, the region lacked any effective crisis management mechanism. ASEAN lacked the resources to deal with the crisis even if it had wanted to: a swap facility known as the ASEAN Swap Arrangement had existed since 1977 but had never been utilized and was in any case far too small to be of any practical significance. APEC, despite the much greater resources at the disposal of member countries, took no real action aside from issuing a call for responsible macro-economic policies and guidelines for crisis management called the Manila Framework (Rajan 2001). The only East Asian group with any kind of financial management mission was the Executives’ Meeting of East Asia Pacific central banks (EMEAP), which had been set up in 1991 as a result of a Japanese proposal for a new central bank forum.2 Loosely under the auspices of EMEAP, some bilateral repurchase agreements were made among regional countries in the 1990s (Yam 1997). But at the time of the crisis, EMEAP had not evolved into anything more than a low-profile, informal dialogue group. In the early stages of the crisis Japanese officials raised the idea of an ‘Asian Monetary Fund’ (AMF) privately with Asian governments, before publicly announcing their proposal for a regional liquidity fund in September 1997 (Amyx 2004). Strong opposition from the US and a lack of Chinese support, however, meant that the proposal was shelved. In the absence of a viable alternative, Thailand, Indonesia and Korea, three of the countries worst hit by the crisis, were forced to comply with muchcriticized IMF rescue schemes. Malaysia, the other ‘crisis’ economy, avoided this only by being able to tap substantial domestic funds, organizational capacity and Japanese finance to support its heterodox recovery policies (Hamilton-Hart 2002: 163–168). Third, the IMF’s prominent role in crisis management, its controversial insistence (in the early stages of the crisis) on contractionary macroeconomic policies and its stipulation of extensive structural reforms in recipient countries provoked widespread debate over the need to reform the global institutions tasked with promoting international financial stability. Even some of those who largely agreed with the content of the reforms prescribed by the IMF questioned the style and legitimacy of this kind of external compulsion to adopt reforms that would alter core sociopolitical arrangements. And even defenders of the IMF agreed that some reforms to its structure and approach to crisis management were necessary. The high level of concern that extant global regimes were unable to safeguard financial stability led to a flurry of proposals to create a new ‘international financial architecture’ in the immediate post-crisis period (Kahler 2000). However, despite agreement to adopt several new codes covering international banking and financial regulation, little fundamental change to the international financial governance regime has been secured. During and after the financial crisis East Asian countries began to institutionalize summit meetings and ministerial dialogues bringing together the ‘ASEAN+3’ countries (also referred to as ‘ASEAN Plus Three’ or

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APT), made up of the ten countries of ASEAN, China, Japan and South Korea. ASEAN+3 was the first significant move towards East Asian regional institution-building since the contentious proposal of Mahathir, the Malaysian prime minister at that time, for East Asian cooperation in 1990 (Webber 2001; Stubbs 2002; Terada 2003). It was against this backdrop of growing awareness of regional interdependence, a desire to develop regional institutions more generally, and dissatisfaction with the slow progress of global financial reforms that the CMI and other regional initiatives unfolded.

The Chiang Mai Initiative and related financial cooperation The Chiang Mai Initiative refers to the decision of the ASEAN+3 finance ministers meeting in Chiang Mai in May 2000 to expand the ASEAN Swap Arrangement (ASA) and set up a network of bilateral swap arrangements (BSAs) to provide emergency foreign currency liquidity support in the event of a future financial crisis. The ASA was enlarged from $200 million to $1 billion with effect from November 2000. Over the next three years, a series of BSAs were negotiated, amounting to a total of $36.5 billion in potential liquidity support by December 2003 (see Table 7.1). The expanded ASA and the BSAs do not constitute a regional liquidity facility of $36.5 billion in total funds available to any one country: at a maximum each may only draw up to the amount available in the BSAs Table 7.1 Currency swaps under the Chiang Mai Initiative Parties

Currencies

Date agreed

Size

Japan-Korea Japan-Thailand Japan-Philippines Japan-Malaysia PRC*-Thailand Japan-PRC PRC*-Korea Korea-Thailand Korea-Malaysia Korea-Philippines PRC*-Malaysia Japan-Indonesia PRC*-Philippines Japan-Singapore Korea-Indonesia PRC*-Indonesia

$/won $/baht $/peso $/ringgit $/baht yen/renminbi renminbi/won $-won/baht $-won/ringgit $/peso $/ringgit $/rupiah renminbi/peso $/S$ $/rupiah $/rupiah

4 July 2001 30 July 2001 27 August 2001 5 October 2001 6 December 2001 28 March 2002 24 June 2002 25 June 2002 26 July 2002 9 August 2002 9 October 2002 17 February 2003 31 August 2003 10 November 2003 24 December 2003 30 December 2003

$2 billion $3 billion $3 billion $1 billion $2 billion $3 billion $2 billion $1 billion $1 billion $1 billion $1.5 billion $3 billion $1 billion $1 billion $1 billion $1 billion

* People’s Republic of China Source: ADB 2004. Note: Although funds potentially available under the bilateral swaps are said to amount to $36.5 billion, the amounts shown here do not sum to $36.5 billion because some of these agreements are two-way arrangements and hence are counted twice.


it has signed. Taken together with the additional $7.5 billion in bilateral swaps provided by Japan to Korea and Malaysia under the New Miyazawa Initiative, however, the CMI means that regional liquidity facilities would provide quite substantial funding if drawn upon. One point of comparison is the amount made available in the IMF bailout packages of 1997. Although the total available to any country under the BSAs is far less than the amount pledged in the IMF packages, these packages need some interpretation. Although they were widely described as mobilizing $17 billion for Thailand, $35 billion for Indonesia and $57 billion for Korea, this included substantial ‘second line of defence’ commitments offered, if necessary, on a bilateral basis in the future (Radelet and Sachs 1998: 49–51).3 When assessing the adequacy of the BSAs it is also important to consider that, at present, CMI support is intended to provide additional support for recipient countries, not to replace crisis lending from the IMF. The supplementary nature of the CMI comes from its official link to the IMF. The BSAs provide for ‘automatic’ disbursement (subject to the provider’s agreement) of up to 10 per cent of the total facility. Beyond this, countries drawing from the facility have to have an IMF programme in place, a stipulation that China and Japan succeeded in embedding into the agreement, against the objections of Malaysia in particular (Business Times 2001a, 2001b; Amyx 2004). This linkage to IMF conditionality has been criticized for undermining the independence of the CMI and hence the main rationale (in some views) for a specifically regional institution (Dieter and Higgott 2003). Does the linkage mean that the CMI will be nothing more than a regional arm of the IMF, subject to the same problems associated with the IMF’s crisis-related lending? Such a conclusion is premature. While it is clear that some countries, particularly Singapore, have no wish to promote a regional facility that would ever be independent of the IMF, retaining the IMF linkage does not necessarily mean that the CMI will never develop any independence. For the main donor countries insisting on the linkage to the IMF, its conditionality is useful as a way of deflecting criticism of bailout exercises that are likely to involve unpopular or intrusive measures. As providers of funds, they have an obvious interest in ensuring appropriate use and repayment of emergency finance; hence some kind of conditionality to minimize moral hazard and avoid disbursement if supporting policies are not in place is not surprising. An IMF veto against the wishes of lending countries is not impossible but is not likely. Especially given the criticism it received over its handling of the last crisis, it would be politically difficult for the IMF to delay or refuse to provide funding to which members are entitled under standard IMF terms, thereby blocking disbursements that donor countries wished to make. While putting together financing packages that exceed regular IMF quotas tends to be time-consuming and subject to political involvement, this difficulty would be avoided to the extent that CMI funds reduce the need for extraordinary IMF financing packages.


In official discussions on the CMI, the main reason for retaining a link to the IMF is that the region currently lacks any system of surveillance, which is a necessary counterpart to liquidity support. IMF surveillance and conditionality is necessary to protect the credibility of the new regional facility. Without it, the BSAs could have perverse effects if they were drawn by countries perceived to need some kind of structural adjustment policies: in such circumstances, disbursements would simply line the pockets of currency speculators and do nothing to halt a loss of investor confidence. Surveillance is also necessary to reduce the inevitable moral hazard element generated by commitments of support: the risk that expectations of rescue will reduce incentives for taking adequate prudential measures. In seeking to ensure that funds will not be made available unconditionally, the CMI is not exceptional, although the degree of linkage to IMF programmes is high compared to regional and bilateral facilities elsewhere (Henning 2002). Some regulatory standards and supervision are generally seen as a necessary complement to lender of last resort facilities, whether these are provided at the domestic level or internationally. The CMI may outgrow its formal link to the IMF. There are real divisions of opinion as to whether this is desirable but, officially, the link to the IMF is a temporary measure, agreed to on the condition that a regional study group be established to examine issues associated with a regional surveillance system. The ASEAN finance ministers’ meeting of April 2001 affirmed that IMF linkage is necessary until a regional surveillance mechanism is brought into place and ASEAN+3 finance ministers agreed at the May 2001 ADB meeting to set up a study group to this end and to devise a mechanism for policy dialogues and economic reviews. In November 2001, the study group met in Kuala Lumpur and discussed reports prepared by Malaysia’s central bank and Japan’s finance ministry (Bergsten and Park 2002: 31, 33). Although no agreement was reached on specifics, they did agree to a two-phase approach to continue the process of developing regional surveillance. There is no time-frame for completing this process, but the goal is to create a regional group or institution that will be able to make independent assessments of regional countries (Bergsten and Park 2002: 48–49). Supporting this process, new initiatives for information-gathering and analysis have been located within the Asian Development Bank, which has developed a prototype for a regional early warning system that may be the beginning of some regional surveillance capacity (ADB 2002a). The ADB is among the players contributing to the intellectual process of developing frameworks and technical analyses of financial cooperation trajectories (ADB 2002b). It thus plays a role as part of a developing regional surveillance system, although it is a long way from carrying out the kind of surveillance functions performed by the IMF (de Brouwer 2004).


Significance of the CMI Is the creation of a regional crisis management and prevention system desirable? The rationale for international lender of last resort facilities is compelling: to prevent temporary liquidity crises from spiralling into financial collapse and damage to the real economy. Given adequate surveillance, it is widely accepted that lender of last resort facilities are likely to do more good than harm. A question that remains, however, is whether international lenders of last resort should operate on a regional basis. In this case, is the CMI useful when the IMF already provides limited lender of last resort functions? The CMI is useful because, while the IMF also plays a role, the current system of managing financial crises centred on the IMF suffers several weaknesses. First, the depth of the Asian financial crisis was arguably exacerbated by insufficient liquidity provision by the IMF (Radelet and Sachs 1998; Bird and Ramkishen 2002). Since the IMF’s financial resources are limited, the CMI is useful in that it provides a mechanism for mobilizing additional liquidity when needed. Second, because of the degree of interdependence that exists in East Asia, regional countries have a particular incentive to contribute to crisis management efforts as a form of local self-help (Rajan 2000), which should make it politically easier to secure support than working exclusively through the IMF, which has a much more diversified membership and mandate. Third, developing regional crisis prevention and management capacities should serve to improve the quality of advice and conditionality attached to IMF lending and global financial governance more generally. Even the IMF itself conceded it had something to learn from its management of the crises of 1997–98. The development of a regional perspective through dialogue, surveillance and institutionalized cooperation should make it more possible for local views and interests to be more effectively incorporated into global financial governance efforts.4 There are, of course, costs associated with developing a specifically regional crisis management capacity. One stems from the distribution of international bank lending and investment flows to the region. European banks are collectively by far the largest foreign bank lenders to East Asian countries, and American banks are increasing their share of foreign loans to Asia (Hamilton-Hart 2004). A regional facility could therefore see donor countries in the region carrying a disproportionate share of future bailout costs. A second cost relates to the development of adequate regional surveillance systems: the data gathering and analysis associated with genuine surveillance efforts is intrusive and time-consuming and is perceived by some regional governments to duplicate efforts spent meeting IMF surveillance requirements (Amyx 2004). The costs and benefits of the CMI should not be seen in isolation. Not only are the BSAs linked to the development of regional surveillance, the


CMI forms part of a wider system of financial cooperation which could provide regional countries some protection from the vulnerabilities associated with capital mobility, such as cooperation in capital account monitoring and technical assistance with financial regulation (Rajan 2001). Japan is providing most of the technical assistance, particularly for monitoring capital flows, but other countries, including China and Korea, have hosted training courses for financial regulators and other economic officials from regional countries (Thomas 2002: 17). Technical assistance for developing the capacity of financial sector regulatory agencies in the region has also been provided by Japan, in connection with an ASEAN+3 initiative to develop regional bond markets (ASEAN+3 2004). This initiative to develop bond markets aims to strengthen regional financial markets and reduce underlying vulnerabilities by promoting intraregional investment and reducing dependence on bank lending (Chan 2001). The most tangible product so far of cooperative bond market development is the agreement to launch a $1 billion Asian Bond Fund reached at an EMEAP meeting in early June 2003. EMEAP countries will each contribute to a fund that will invest in sovereign and semi-sovereign bonds issued by EMEAP members other than Australia, New Zealand and Japan (Business Times 2003a). Although initially the fund will invest in US dollar-denominated bonds, several leaders have expressed an interest in supporting local currency issues, something that was agreed in principle at a following meeting of the Asia Cooperation Dialogue group (Business Times 2003b).5

CMI = closer monetary integration? Much of the interest generated by the CMI has not been over the details of technical financial cooperation but over the possibility that it will be a precursor to closer monetary integration in East Asia (e.g. Dieter and Higgott 2003; Bergsten and Park 2002). The escalation of regional institution building in East Asia and the successful launch of the euro has fed the idea that East Asia might some day have its own currency. This would represent complete monetary integration. Nobody is suggesting that this will become a serious issue on the official regional cooperation agenda very soon. However, many intermediate options involving a degree of monetary cooperation are now being considered and policymakers in some regional countries – notably Japan, Malaysia, Hong Kong and the Philippines – have on several occasions raised the idea of a single currency as a desirable possibility for the future (Hamilton-Hart 2003).6 Research projects investigating the viability of monetary cooperation in the region have received official support and funding. One of these, the Kobe Research Project, was endorsed by the Asia Europe Meeting (ASEM) of finance ministers held in January 2001 and presented its reports in July the following year. Led by Japanese academics working in


cooperation with officials and academics from Europe and Asia, the Research Project’s reports contain several technical studies pointing to the benefits of greater monetary cooperation as well as discussions of preconditions and modalities.7 With Australia, the Japanese Ministry of Finance has also co-sponsored a three-year research project on future financial arrangements in East Asia, which includes studies of cooperative currency arrangements in the region. And both the ADB and the ADB Institute in Tokyo have published studies investigating different monetary cooperation options. Monetary cooperation involves agreement to coordinate the external value of national currencies, either against each other, as in the European Monetary System that preceded the adoption of a common currency, or against a basket of other currencies. A basket peg option could be for a common basket peg or for individual trade weighted baskets. While the specific choice of exchange rate regime matters for technical calculations of specific gains and costs, any cooperative exchange rate setting involves a trade-off in terms of lost monetary policy autonomy. Monetary cooperation options that fall short of total monetary integration also face the issue of whether such intermediate positions are sustainable. Particularly in the wake of recent crises, many economists have argued that anything other than ‘hard corner’ exchange rate regimes are unsustainable: countries should either follow a free float or commit to an irreversible currency peg and give up monetary policy independence. The shift to more flexible exchange rates in some East Asian countries since the crisis has been associated with some increase in monetary independence (Kim and Lee 2002). However, most governments in the region appear to be extremely reluctant to follow a free floating exchange rate regime. Hence in addition to Malaysia’s introduction of a formal peg to the US dollar, China and Hong Kong have maintained their de facto pegs, and several other countries appear to have reverted to pre-crisis exchange rate regimes, which suggest that the US dollar is the most important currency against which the exchange rate is managed.8 This ‘fear of floating’ is, in fact, shared by many countries (Calvo and Reinhart 2002), and practical prescriptions for exchange rate policies probably need to take this into account. While a reluctance to float freely is not irrational, it does not follow that the region’s current reliance on the US dollar in currency baskets, international transactions and reserve holdings is optimal. On average over the 1990s, the United States accounted for about 25 per cent of total exports from most regional countries, 34 per cent in the case of China and 39 per cent for the Philippines (Lahrèche-Révil and Bénassy-Quéré 2002: 4). Currency regimes that give overwhelming predominance to the US dollar thus expose countries to fluctuations in exchange rates vis-à-vis markets that are collectively more significant. Intra-regional trade amounted


to 51 per cent of total trade in 2000, compared to 42 per cent in 1980 (Shin and Wang 2002: 26).9 Monetary cooperation would also allow regional countries to reduce their extraordinarily high foreign reserve holdings. In 2000, East Asian countries together held foreign reserves of more than $1 trillion – compared to $171 billion held by the European Monetary Union countries and $29 billion held by the United States (Shin and Wang 2002: 28). Over the next three years, Asian countries sharply increased foreign exchange reserves even further, with a variety of measures of reserve adequacy all pointing to extremely large holdings in comparison with non-Asian countries (BIS (Bank for International Settlements) 2004: 97). Monetary cooperation requires countries to align monetary policy and thus pay a price in terms of monetary policy autonomy. As extensively analysed in the literature on optimal currency areas, whether this tradeoff is worth it or not depends on the degree of factor mobility and economic integration among a group of countries, their structural similarity in terms of exposure to external shocks, and the flexibility of domestic prices.10 In this regard, Japan, Taiwan, Singapore, Korea and Hong Kong are better candidates for monetary cooperation than the whole of East Asia, which is much more diverse (Kwan 2001: 162–169).11 The gains from a common currency basket might not be evenly distributed among different countries but, in economic terms, monetary cooperation in East Asia makes as much sense as in Europe (de Brouwer 2002; Eichengreen and Bayoumi 1999: 360). Further, studies of monetary cooperation that take into account the dynamic effects of such cooperation suggest that many of the preconditions for monetary cooperation as set out in optimum currency area theory are in fact endogenous (Frankel and Rose 2002). In particular, a shared currency is something that in itself significantly increases trade flows, which may be one of the more important benefits associated with monetary cooperation.

Trade integration initiatives Apart from a temporary downturn in the wake of the financial crises of 1997–98, intra-Asian trade has steadily increased, in both absolute and relative terms, over the last two decades. Given the potential complementarity between trade integration and monetary cooperation, the proliferation of trade liberalization agreements involving regional countries since 1998 raises questions about the implications of these agreements for regional monetary arrangements. As noted by a former senior Japanese finance official (later nominated as Japan’s candidate to head the Asian Development Bank), increasing trade and investment integration could produce trade friction unless Asian countries take steps to match integration with closer cooperation in regional monetary affairs (Business Times 2004a).


The recent trade liberalization agreements concluded by regional countries, described in this section, are unlikely to have a dramatic effect on levels of economic integration in the near term. However, on balance, they are likely to reinforce regional interdependence and add to incentives for monetary cooperation. Formal bilateral and regional trade liberalization agreements are a relatively recent development in East Asia. Until the 1990s, most countries prioritized trade liberalization in the multilateral arena, through the General Agreement on Tariffs and Trade (GATT), rather than via bilateral or regional initiatives. However, in the early 1990s, two initiatives for trade liberalization at the regional level gained support: ASEAN’s intramural FTA, the ASEAN Free Trade Area (AFTA), was announced in 1992; and APEC began moves towards a formal trade liberalization agenda in 1993. By the end of the 1990s, the APEC trade agenda had largely been abandoned but, after a period of doubts about its progress, ASEAN members restated their commitment to strengthen AFTA. ASEAN negotiations to deepen integration aimed at forming an ‘Economic Community’ are, as of 2004, still in the process of setting timetables for opening up specific domestic sectors (ASEAN 2003). The gradual implementation of AFTA signals ASEAN members’ mixed attitudes and capacity with regard to trade liberalization, but in itself the agreement has only limited implications for trade integration on an East Asian basis: intra-ASEAN trade makes up a relatively small part of total trade for ASEAN members and a small part of the total trade of East Asian countries. Of greater potential significance for regional trade integration are the recent bilateral and ‘ASEAN plus’ agreements that aim to open up links with more significant external markets. These agreements, referred to here generically as FTAs (free trade areas), have proliferated dramatically since 1998.12 One account cites 33 new FTA projects in the broad Asia-Pacific (including North America) area by mid-2002 (Dent 2003: 2–4), and another lists 45 FTAs involving countries in the Western Pacific either proposed, under study, under negotiation or signed as of mid-2002 (Ravenhill 2003: 305). Since then, many new potential FTA partnerships have been announced, with Singapore being the East Asian country that is pursuing the greatest number of bilateral FTAs. Japan has been much more cautious but its bilateral agreement with Singapore, signed in January 2002 after negotiations launched in October 2000, marked a significant shift in Japan’s traditional avoidance of bilateral FTAs (Munakata 2001). Japan’s second FTA, with Mexico, was only sealed in September 2004. Unlike the Singapore deal, it does include some liberalization of agriculture with a country with significant potential for agricultural exports. Under the agreement Japan has granted immediate preferential access for 22 farm products and is committed to lowering tariffs on most Mexican produce over three to seven years (Straits Times 2004a). Other FTAs involving Japan remain in the early


stages of discussion. The idea for a Japan-South Korea FTA was first raised informally in 1998 but, despite the joint academic feasibility study being completed in May 2000 (Munakata 2001), negotiations have yet to progress. Japan has also announced its commitment to form some kind of FTA with ASEAN. The ASEAN-Japan Comprehensive Economic Partnership, signed in November 2002, provided for ‘elements of an FTA’ to be implemented within ten years, most probably using bilateral deals rather than a collective agreement (Desker 2004: 12). Another declaration of intent under the Partnership was made when Japan and ASEAN signed an agreement to ‘progressively eliminate duties and other restrictive regulations of commerce on substantially all trade in goods’ in October 2003 (Business Times 2003c). Actual negotiations with Japan were to begin in 2005. Given domestic obstacles and resistance to trade liberalization in Japan and some ASEAN countries, it is likely that the ASEAN-Japan partnership will end up emphasizing trade and investment facilitation, rather than comprehensive trade liberalization. In contrast to the vague ASEAN-Japan partnership, more excitement has been generated by the Chinese proposal in November 2000 to establish an FTA with ASEAN.13 The decision to authorize the start of negotiations was announced in November 2001, with an initial timetable that proposed that the negotiations would be concluded by the end of 2003 and the FTA would be phased in by 2010 (Cai 2003: 396). The first round of talks began in May 2002 and subsequent talks continued over the next two years. Under the ‘early harvest’ programme, tariffs on some agricultural products were cut to between 2 and 15 per cent in January 2004, with further tariff cuts and reduction of non-tariff barriers covering trade in most goods categories to be introduced progressively from January 2005 (PricewaterhouseCoopers 2004; China Daily 2004). Other ‘ASEAN plus’ agreements are also on the table. In 2004, ASEAN announced that it would begin negotiations on free trade agreements with Japan, Korea, Australia and New Zealand during 2005 (Business Times 2004b). ASEAN is also working on an agreement with India, which in 2002 proposed an FTA with ASEAN within ten years. Tariff reductions on a limited range of products were to begin in 2005 (Financial Times 2002; Jakarta Post 2004a). All of these FTAs are likely to fall short of completely eliminating barriers on the full range of trade in goods. Certainly, the prospect of ASEAN FTAs with third parties has not deterred Singapore from pursuing its own more extensive agreements with many countries. In addition to agreements concluded with New Zealand, Japan and the US, Singapore has announced its intention to seek FTAs with several other countries, including China.14 What all these FTAs will amount to remains unclear. Among the many contentious issues raised in connection with the FTAs, four stand out as


relevant for understanding their implications for regional integration in East Asia. The first concerns the economic benefits of the FTAs for the countries that are party to them. The most enthusiastic accounts of the China-ASEAN FTA as a significant step to greater regional cooperation mention ‘challenges’ of liberalization but emphasize long-term benefits and efficiency gains for all parties (Cai 2003: 398–401). In contrast, accounts that seek to demonstrate that Asia is not moving towards any significant regionalism dismiss the China-ASEAN FTA as having no economic rationale and assert that there is little evidence that ASEAN countries stand to gain economically from it (Hund 2003: 396–397, 409). Beyond these thinly substantiated assessments, there are some economic analyses that estimate that the FTA would have overall positive effects on trade flows and growth. The official joint study on the FTA by Chinese and ASEAN academics estimated that ASEAN exports to China would increase by 48 per cent and that ASEAN GDP would increase by 0.9 per cent while China’s GDP would increase by 0.3 per cent (cited in Yeo 2002: 4). The concern that China’s greater competitiveness would result in the FTA damaging ASEAN countries is frequently mentioned, although at least one study has concluded that China is not such a threat, owing to a different composition of exports. It argues that: China has indeed gained market share in major export markets over the course of the last decade. However, contrary to popular perceptions, China’s gains have not come about at the expense of the labor-intensive ASEAN-4 economies [Malaysia, Thailand, Indonesia and the Philippines]. Instead, China and the ASEAN-4 have together displaced the newly industrialized economies in industries – such as apparel, footwear, and household products – that these more advanced economies were relinquishing. (Loungani 2000) For the much less-developed new members of ASEAN (Cambodia, Laos, Myanmar and Vietnam), competition from China is much more acute, something that the FTA recognizes by according these countries differential treatment (Wattanapruttipaisan 2003). While there remains much scope for independent economic models of the FTA to address points of contention regarding the distribution of gains and losses from further liberalization, the agreement will probably not have dramatic effects, given that on technical measures of integration in goods and services markets China and the major economies of ASEAN are already relatively integrated (Laurenceson 2003). It is the distribution of impacts at the sub-national level that is likely to have a greater effect on the prospects for the China-ASEAN FTA as well


as other FTAs. Thus the second area of debate about the FTAs is how likely they are to bring about substantial liberalization at all, given that there are protected domestic groups that oppose liberalization in several regional countries. To the extent that such groups are influential, the agreements themselves are likely to be watered down or remain very limited in scope. Countries where certain sectors continue to benefit from protection, such as Indonesia, Malaysia and Vietnam, have expressed reservations about liberalization commitments in the proposed China-ASEAN FTA (Hund 2003: 397). While Malaysia’s reservations regarding trade in the automotive sector are well known, the Philippines and Indonesia have shown signs of a willingness to protect a greater range of products and sectors. In 2002, Philippine president Arroyo announced a review of the country’s commitments to liberalization under AFTA after complaints about harm to domestic industries (Straits Times 2002). Around the same time, Indonesia introduced new measures to protect local industries, including sugar, steel and textiles, from import competition ( Jakarta Post 2002a). Indonesian agricultural producers have been opposed to tariff cuts on commodities under AFTA ( Jakarta Post 2002b) and the country’s major business association has not been supportive of trade liberalization. Despite officially endorsing liberalization initiatives, government policy in Indonesia has been relatively receptive to these interests, with a senior official announcing that the government would continue supporting the country’s automotive and electronic industries after ASEAN liberalizes the sectors in 2007 ( Jakarta Post 2004b). Across the region, the liberalization agenda clearly enjoys mixed support, with much higher levels of commitment to liberalize in China, Singapore and Thailand than in most other countries. There is a very valid concern that recent bilateral agreements provide continued shelter for such domestic interests and therefore entrench their position (Ravenhill 2003). Whether this occurs will depend on the details and implementation record of current agreements, as they get worked out over the next years. To the extent that it is possible to tell at present, on balance most recent agreements appear to move the agenda in the direction of greater liberalization for most economic sectors, even if only minimally. The sub-optimality of FTAs that avoid liberalizing politically powerful protected sectors – an attempt at ‘liberalization without political pain’ (Ravenhill 2003) – is a third dispute surrounding the FTAs. To their critics, not only are such FTAs likely to have minimal welfare benefits, but the asymmetry of the bilateral FTAs, many of which are between countries with very disproportionate bargaining resources, could result in undermining the potential for broader liberalization in more inclusive arenas. Defenders of the bilateral FTAs argue that they are pragmatic second best options, given slow progress in regional and multilateral arenas, and that the proliferation of such agreements holds out the prospect of developing


a network of FTAs and enhanced linkages across the Pacific region (Desker 2004). In one account, the inefficiencies of regional integration via a set of separate FTAs, each with its own complex technical provisions and legal rules (the ‘spaghetti bowl’ effect condemned by economist Jagdish Bhagwati), would actually create incentives to rationalize the bilateral agreements into wider agreements that standardize terms (Dent 2003: 22). This prospect, however, assumes that the domestic political difficulties that are arguably the reason for resorting to selective and bilateral FTAs in the first place will somehow be bypassed. The fourth point of contention raised by the FTAs concerns their implications for regional cooperation on an East Asian basis. In some views, ASEAN’s agreements with Japan and China signal a commitment to region building more generally, and offer a way of building up trust and partnership (Cai 2003). This remains speculative, but the contrary view – that recent agreements can be read as signalling a generally negative attitude towards regionalism (Hund 2003) – is unwarranted except in a few cases. Regional trade agreements do face opposition in several countries, but this reflects the political difficulty of formal trade liberalization in countries where domestic interests seeking protection remain influential – it is not a difficulty specific to regional agreements. The fact that several of the recent FTAs involve partnerships with countries outside East Asia has also been taken to imply a reduced emphasis on regionalism and the likely further development of linkages with extraregional countries. Clearly, agreements such as the Singapore-US FTA do signal a reduced priority placed on regional partnerships and wish to cement extra-regional ties, as much for strategic as economic reasons (Koh and Chang 2004). But in other cases, such as ASEAN’s agreements with both China and Japan as well as the politically difficult proposals among Northeast Asian countries, negotiations are part of an expanded regional diplomatic agenda and contribute to the density of exchanges in the region. In terms of direct economic effects, the FTAs themselves are not going to significantly redirect trade flows that are based on more fundamental economic conditions. While they are unlikely to dramatically accelerate the economic integration of the region in the near term, they are also unlikely to reverse the trend towards increased regional economic interdependence. FTAs with countries outside East Asia simply confirm the region’s long-standing economic ties with global markets. External markets continue to be of critical importance and this is unlikely to change in the foreseeable future. Such linkages, however, even if expanded, do not reduce incentives for regional monetary cooperation. Openness to global forces can reinforce rather than undermine both political and economic incentives for regionalism (Henning 1998). In the case of monetary cooperation in East Asia, the fact that regional countries compete in extra-regional


markets actually increases the potential pay-off from regional cooperation, if countries can thereby avoid sub-optimal exchange rate policies designed to ensure competitive advantage in third markets. Realizing such benefits, however, is subject to overcoming significant collective action problems. Whether countries are able to do this will depend on intra-regional political dynamics rather than the economics of trade and monetary integration.

Conclusion: politics and regional monetary cooperation Given the potential gains from monetary cooperation and the apparent sub-optimality of the weight given to the US dollar in exchange rate regimes, the question arises as to why much of the region has returned to US dollar-oriented regimes rather than seeking out alternative arrangements. The general reason is that, to date, regional cooperation lags behind economic developments and closer monetary integration is unlikely to occur without deliberate cooperation. The dynamics involved in adopting exchange rate regimes suggest that countries are sensitive to the choices of their trading competitors and, in the absence of credible commitments to adopt a shared exchange rate regime, may end up with sub-optimal arrangements (Ogawa 2002). In the case of Southeast Asia, for example, Malaysia’s decision to adopt a fixed currency peg to the US dollar appears to have influenced the exchange rate policies of Thailand and Singapore and may partially account for the apparent return to sub-optimal US dollar-dominated currency baskets by these countries (Fukuda 2002). Resolving such coordination failures requires overcoming collective action problems among a group of formally sovereign states. In the absence of an undisputed regional hegemon to monitor the costs of compliance, do countries in the region have enough confidence in each other to allow them to cooperate? Political suspicion and resentments intrude into some relationships, particularly between Japan and China, and the region has no undisputed leader able to settle disputes and provide other public goods (Webber 2001). Yet the region is clearly not one where inter-state political rivalries and mistrust make cooperation impossible. Regional countries have been engaged in dialogues and ventures to increase levels of interdependence for some time, and political demand for regional cooperation has markedly increased since 1998 (Terada 2003; Stubbs 2002). All major countries in the region have already accepted some significant limits on their autonomy in order to reap the benefits of economic integration. It thus seems unreasonable to dismiss the chances of closer monetary integration in East Asia on the grounds of unyielding political rivalry and sovereignty concerns. While prospects for monetary cooperation are definitely linked to progress on the development of regional cooperation more generally, this broader cooperation agenda is developing relatively rapidly.


Notes 1 These issues are discussed in Noble and Ravenhill 2000. 2 The group comprises Singapore, Malaysia, Indonesia, Thailand, the Philippines, China, Hong Kong, South Korea, Japan, Australia and New Zealand. 3 Slow disbursements in the case of Indonesia, which received only $3 billion in IMF funds in the first six months of its crisis, meant that actual crisis management lending was in this case quite limited. 4 This goal has been explicitly recognized by many East Asian policy makers involved in regional financial cooperation. See Hamilton-Hart 2003. 5 The Asia Cooperation Dialogue group is the result of a Thai proposal for cooperation among Asian countries, including several from the Middle East and South Asia, launched in June 2002. The group is largely a non-institutionalized dialogue forum only. An overview of its activities is available from the Thai foreign ministry at www.mfa.go.th/web/975.php. 6 Other countries, in particular Singapore, have consistently emphasized that a single currency is not a viable option in the near future. See, for example, remarks by the head of the Monetary Authority of Singapore (Straits Times 2001). 7 The reports of the Kobe Research Project are available from www.mof. go.jp/jouhou/kokkin/tyousa/kobe_e.htm. The ADB has also sponsored their publication. See ADB 2004. 8 The finding is common to several studies of post-crisis exchange rate policies in the region. See, for example, the report of the study group on exchange rate regimes for Asia, Kobe Research Project: www.mof.go.jp/jouhou/kokkin/ tyousa/kobe_e.htm. 9 Estimates of intra-regional trade vary widely by source. Although the trend towards increased regional trade is clear, it is also the case that the region’s exports remain significantly dependent on final demand in non-regional markets (Burton 2004). 10 See Calvo et al. 2001 for recent work on Optimum Currency Area (OCA) theory. 11 Several other studies have estimated that there are potential gains from currency cooperation in the region. See, for example, Williamson 1999; McKinnon 2001; Ito 2002; Shin and Wang 2002. 12 The term FTA reflects usage in most of the agreements themselves. It is, however, misleading in that few of them establish ‘free trade.’ Some, such as the Singapore-US FTA, target a wide range of issues that are outside a traditional trade agenda (Koh and Chang 2004), and most include significant exemptions and qualifications. 13 This proposal was in fact widely seen as prompting the Japanese initiative for a ‘partnership’ ASEAN. 14 Singapore and China agreed to go ahead with negotiations on their own bilateral FTA by November 2004, although this timetable was put in doubt after China warned that the visit to Taiwan in July of Singapore’s incoming prime minister had damaged prospects for the talks (Business Times 2004c; Straits Times 2004a).

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Kahler, Miles (2000) ‘The New International Financial Architecture and its Limits’, in Gregory Noble and John Ravenhill (eds) The Asian Financial Crisis and the Structure of Global Finance, Cambridge: Cambridge University Press: 235–260. Kim, Chang Jin and Lee, Jong-Wha (2002) ‘Exchange Rate Regimes and Monetary Independence in East Asia’, paper prepared for a conference on ‘Linkages in East Asia: Implications for Currency Regimes and Policy Dialogue’, Joint AustraliaJapan Research Project on Future Financial Arrangements in East Asia, Seoul, 23–24 September. Koh, Tommy and Chang Li Lin (eds) (2004) The United States Singapore Free Trade Agreement: Highlights and Insights, Singapore: Institute of Policy Studies and World Scientific. Kwan, C. H. (2001) Yen Bloc: Toward Economic Integration in Asia, Washington DC: Brookings Institution Press. Lahrèche-Révil, A. and Bénassy-Quéré, A. (2002) ‘China in a Regional Monetary Framework’, paper prepared for the Kobe Research Project, April. Available from www.mof.go.jp/jouhou/kokkin/tyousa/kobe_e.htm. Laurenceson, James (2003) ‘Economic Integration between China and the ASEAN-5’, ASEAN Economic Bulletin, 20: 2: 103–111. Loungani, Prakash (2000) ‘Comrades or Competitors? Trade Links Between China and Other East Asian Economies’, Finance and Development, 37: 2. McKinnon, Ronald (2001) ‘Euroland and East Asia in a Dollar-Based International Monetary System: Mundell Revisited’, in Guillermo Calvo, Rudi Dornbusch and Maurice Obstfeld (eds) Money, Capital Mobility and Trade: Essays in Honor of Robert A. Mundell, Cambridge MA: MIT Press: 413–429. Munakata, Naoko (2001) ‘Evolution of Japan’s Policy Toward Economic Integration’, Working Paper, Center for Northeast Asian Policy Studies, The Brookings Institution, December. Noble, Gregory and Ravenhill, John (eds) (2000) The Asian Financial Crisis and the Architecture of Global Finance, Cambridge: Cambridge University Press. Ogawa, Eiji (2002) ‘Economic Interdependence and International Coordination in East Asia’, paper prepared for the report of the study group on Exchange Rate Regimes for Asia, Kobe Research Project. Available from www.mof.go.jp/jouhou/ kokkin/tyousa/kobe_e.htm. PricewaterhouseCoopers (2004) ‘Special Issue: ASEAN-China Free Trade Agreement’, September, Hong Kong. Available from www.pwchk.com. Radelet, Steven and Sachs, Jeffrey (1998) ‘The East Asian Financial Crisis: Diagnosis, Remedies, Prospects’, Brookings Papers on Economic Activity, 1: 1–90. Rajan, Ramkishen (2000) ‘Examining the case for an Asian Monetary Fund’, Visiting Researcher Series No. 3, February, Institute of Southeast Asian Studies, Singapore. –––– (2001) ‘Financial and Macroeconomic Co-operation in ASEAN: Issues and Policy Initiatives’, in Mya Than (ed.) ASEAN Beyond the Crisis: Challenges and Initiatives, Singapore: ISEAS: 126–147. Ravenhill, John (2003) ‘The New Bilateralism in the Asia Pacific’, Third World Quarterly, 24: 2: 299–317. Shin, Kwanho and Wang, Yunjong (2002) ‘Monetary Integration Ahead of Trade Integration in East Asia’, paper prepared for a conference on ‘Linkages in East Asia: Implications for Currency Regimes and Policy Dialogue’, Joint AustraliaJapan Research Project on Future Financial Arrangements in East Asia, Seoul, 23–24 September.


Straits Times (2001) ‘Asian Economies not yet Ready for Single Currency: MAS chief ’, Ignatius Low, 5 June. Straits Times (2002) ‘Arroyo Set to Wind back Free-trade Policies’, 24 September. Straits Times (2004a) ‘China Signals FTA Talks may Face Setbacks’, Jason Leow, 4 August. Straits Times (2004b) ‘Japan, Mexico Ink Free Trade Accord’, 18 September. Stubbs, Richard (2002) ‘ASEAN Plus Three: Emerging East Asian Regionalism?’, Asian Survey, 42: 3: 440–455. Terada, Takashi (2003) ‘Constructing an ‘East Asian’ Concept and Growing Regional Identity: From EAEC to ASEAN+3’, The Pacific Review, 16: 2: 251–277. Thomas, Nick (2002) ‘From ASEAN to an East Asian Community? The Role of Functional Cooperation’, Mimeo, Centre for Asian Studies, Hong Kong University. Wattanapruttipaisan, Thitapha (2003) ‘ASEAN-China Free Trade Area: Advantages, Challenges, and Implications for the Newer ASEAN Member Countries’, ASEAN Economic Bulletin, 20: 1: 31–48. Webber, Douglas (2001) ‘Two Funerals and a Wedding? The Ups and Downs of Regionalism in East Asia and Asia-Pacific after the Asian Crisis’, The Pacific Review 14 (3): 339–72. Williamson, John (1999) ‘The Case for a Common Basket Peg for East Asian Currencies’, in Stefan Collignon, Jean Pisani-Ferry and Yung Chul Park (eds) Exchange Rate Policies in Emerging Asian Countries, London: Routledge: 327–343. Yam, Joseph (1997) ‘Asian Monetary Cooperation’, Per Jacobsson Lecture, Hong Kong, 21 September. Available from www.info.gov.hk/hkma/eng/speeches/ speechs/joseph/speech_210997b.htm. Yeo, George (2002) ‘Building an ASEAN Economic Community’, speech by BG (NS) George Yeo, Minister for Trade and Industry at the AFTA seminar, Jakarta, 31 January. Available from www.aseansec.org/13080.htm.

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Part IV

Conflicts over institutional reform

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8

The EU from Amsterdam via Nice to the Constitutional Treaty Exploring and explaining recent treaty reforms Finn Laursen

Introduction The European Union (EU) has gone through a number of treaty reforms in recent years. The EU itself was formed by the Maastricht Treaty in 1992 (Laursen and Vanhoonacker 1992, 1994). It combined reformed versions of the pre-existing European Communities (EC), including plans for Economic and Monetary Union (EMU) as well as two new ‘pillars’, one for a Common Foreign and Security Policy (CFSP) and another for Justice and Home Affairs ( JHA) cooperation. Further reforms followed in the Amsterdam Treaty in 1997 and the Nice Treaty in 2001. In 2002–03 a Convention on the Future of Europe prepared a proposal for a so-called Constitutional Treaty, which was considered by an Intergovernmental Conference (IGC) that started in October 2003 and concluded in June 2004. To enter into force, the draft treaty had then to be ratified by the 25 EU member states. This chapter provides an overview of the three most recent treaties, discusses the main issues that arose in the successive treaty negotiations and analyses the factors that determined the treaties’ provisions. Compared to other integration schemes such as ASEAN, NAFTA and MERCOSUR (Mercado Común del Sur), the EU has gone much further and is becoming a multi-level polity with many federal traits. The main difference between the EU and other integration schemes lies in the extent of the pooling and delegation of sovereignty that has taken place in the EU. Pooling refers to decision making by majority voting in the Council (of Ministers) and delegation refers to the ‘supranational’ powers given to the European Commission and the European Court of Justice (ECJ). Moravcsik, in his monumental study The Choice for Europe (1998), argues that such pooling and delegation has occurred to create ‘credible commitments’. He sees the EU as an international regime that as such can be compared with other international regimes and integration schemes. However, given the degree of pooling and delegation that characterizes the EU, it can be argued that the EU is very much a sui generis integration scheme.

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Over time the functional scope of the EC/EU has expanded from coal and steel in the first Community, the European Coal and Steel Community (ECSC) in 1952, to include nearly every conceivable policy issue. At the same time membership has increased from six members in the 1950s to 15 in the mid-1990s and 25 in May 2004. The integration process in Europe has both deepened and widened. Changes in these two dimensions – policy scope and membership – have been an important part of the integration process in Europe. A third dimension of integration is the institutional capacity of common institutions. Some scholars say that sovereignty has been pooled and delegated in the EU to the extent that it is a ‘supranational’ organization. Over time this dimension of European integration has become controversial. The founding fathers were sceptical of purely intergovernmental organizations. They believed in strong common institutions, an independent Commission and ECJ, and majority voting in the Council. The founding treaties stipulated qualified majority voting (QMV) in certain policy areas. General de Gaulle did not like QMV and basically stopped the use of QMV when it was supposed to start in the 1960s. But the Single European Act (SEA) introduced QMV for the internal market in 1986 and at about the same time the member states started using QMV in other areas where it was foreseen by the original treaties. In 1986 membership doubled to 12 with Spain and Portugal’s entry. It was widely concluded that the use of QMV was necessary to get decisions adopted among the increased number of members. The Maastricht Treaty, which extended the EU’s competences to various new policy fields, also included QMV for most of these. The use of QMV was then extended in both the Amsterdam and Nice treaties and the draft Constitutional Treaty from the Convention also proposed further increases in the use of QMV. Clearly, if we look at the third dimension of integration, the use of QMV has increased over time. But there are still some limits to this development. In the 2003–04 IGC, the United Kingdom, especially, insisted on maintaining unanimity for CFSP, taxation and social security decisions. The basic argument of this chapter is that the 1950 Schuman Plan, which led to the creation of the ECSC, set inter-state relations in Europe on a new trajectory. For various reasons the ‘Community’ method was extended to new policy areas and new countries joined over time. Economic reasons were very important. The wider market created welfare gains for the participants. But ideological factors – wanting to transcend the anarchic international system that had led to two world wars starting in Europe – also played a role. Geopolitical factors, related to the so-called ‘German Problem’ in 1950 and in the post-cold war situation, have likewise been important. The success of the Communities led to successive enlargements. These enlargements forced the member states to deal with institutional issues. The Communities, and later the EU, went through successive treaty reforms to deal with perceived issues of efficiency and legitimacy.

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As the EU agenda kept expanding, the question of whether the EU had a ‘democratic deficit’ arose. Whereas the debate about efficiency led to increased use of QMV, the debate about a democratic deficit led to an increased involvement of the European Parliament (EP) in the decisionmaking process. In the Maastricht Treaty the EP got a right of co-decision in some policy areas. The use of the co-decision procedure was subsequently increased by the Amsterdam and Nice treaties. If the Constitutional Treaty is ratified, it will further expand the use of co-decision.

The Amsterdam Treaty The heads of state or government finalizing the Maastricht Treaty in December 1991 felt that they had unfinished business. They therefore decided that another IGC would take place in 1996. The Maastricht Treaty would allow the applicants from the European Free Trade Association (EFTA) to accede to the Union, but further enlargements would require additional institutional reforms to make sure an enlarged Union would be able to function (Laursen 2001a). This IGC began in Turin in March 1996. The various agenda points were combined into three main groups: 1 2 3

a Union closer to its citizens; the institutions in a more democratic and efficient Union; a strengthened capacity for external action of the Union.

The wording indicates that legitimacy and efficiency were the main concerns of the political leaders (European Council 1996). The Irish Presidency during the second half of 1996 got the negotiations started. Its main achievement was to work out a draft, which was divided into the following sections: 1 2 3 4 5

An Area of Freedom, Security and Justice; The Union and the Citizen; An Effective and Coherent Foreign Policy; The Union’s Institutions; Enhanced Cooperation – ‘Flexibility’.

Most of this structure was retained by the final Treaty of Amsterdam. But the draft was still very tentative: it proposed some concrete new treaty provisions, but in many cases it did no more than to outline issues or options (CONF (Conference of the Representatives of the Governments of Member States) 1996). One reason why the IGC moved slowly during 1996 was the opposition of the British Conservative government to the kind of changes that most member states supported. It was no secret that many hoped the upcoming

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general elections in the UK would produce a new, more ‘pro-European’ government. The Labour Party indeed won the elections in May 1997. In its manifesto, Labour pledged to give Britain a leadership role in Europe. Labour’s European agenda not only included rapid completion of the single market, high priority for enlargement, urgent reform of the Common Agricultural Policy, greater openness and democracy in EU institutions, and Britain’s signature of the Social Chapter, it also stated that a Labour government would insist on the: Retention of the national veto over key matters of national interest, such as taxation, defence and security, immigration, decisions over the budget and treaty changes, while considering the extension of Qualified Majority Voting in limited areas where that is in Britain’s interest. (UK, Labour 1997) The draft treaty that eventually emerged in Amsterdam on 18 June 1997 had the five sections proposed by the Irish presidency draft plus a sixth section on Simplification and Consolidation of the Treaties (CONF 1997). The treaty’s first section, ‘Freedom, Security and Justice’, dealt with fundamental rights and non-discrimination as well as the progressive establishment of an Area of Freedom, Security and Justice (AFSJ). ‘The Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law, principles which are common to the Member States’ (amended Article F), but the Union must also ‘respect the national identities of its Member States’. A general nondiscrimination clause was added to the treaty, but the main innovation was a system of penalties against member states that failed to respect the fundamental rights. The new provisions creating the AFSJ were in many ways the main achievement of the Amsterdam Treaty. The AFSJ was defined as an area ‘in which the free movement of persons is assured in conjunction with appropriate measures with respect to external border controls, immigration, asylum and the prevention and combating of crime’ (CONF 1997: 11). Basically the treaty moved a number of policy matters from the third pillar of Maastricht, which had remained intergovernmental, to the first pillar, which is ‘supranational’, over a five-year transition period. The transition period included a gradual introduction of QMV in place of unanimity. It was a hesitant move. The decision to apply the Community method fully to this area after five years would require a unanimous vote in the Council, except for aspects of visa policy, for which QMV already applied (CONF 1997: 20). The Treaty further integrated the provisions of the Schengen agreement on the abolition of border controls into the framework of the European Union, with certain matters relating to free movement eventually to go to the first pillar and other matters relating to police cooperation to


the third. The much reduced third pillar, which dealt with police and judicial cooperation in criminal matters, was also improved in various ways, but was complicated by the inclusion of protocols relating to the UK and Ireland (which retained border controls) and Denmark (which participated only in areas regulated by intergovernmental cooperation). The treaty’s second section, ‘The Union and the Citizen’, included a new title on employment and improved articles on social policy, environment, public health and consumer protection. The employment chapter called for a high level of employment, coordination of national policies, guidelines and incentive measures. With respect to social policy, the most important innovation was that the UK was now a member. Section three of the treaty, ‘An Effective and Coherent External Policy’, mainly dealt with CFSP. It established a policy planning and early warning unit. The Secretary-General of the Council was to become High Representative for CFSP, seconded by the deputy Secretary-General who would be responsible for running the secretariat of the Council. The third section also introduced a new category of ‘common strategies’ to be decided by the European Council by unanimity. The Council should in principle be able to adopt joint actions, common positions or other decisions on the basis of a common strategy by a special QMV (at least 62 votes in favour, cast by at least ten members). However, on this point the treaty included a double safeguard. First, provision was made for a Luxembourgcompromise-type veto: If a member of the Council declares that, for important and stated reasons of national policy, it intends to oppose the adoption of a decision to be taken by qualified majority, a vote shall not be taken. The Council may, acting by a qualified majority, request that the matter be referred to the European Council for decision by unanimity. (Article 23 TEC)1 Second, something known as ‘constructive abstention’ found its way into the treaty: When abstaining from a vote, any member of the Council may qualify its abstention by making a formal declaration. . . . In that case, it shall not be obliged to apply the decision, but shall accept that the decision commits the Union. In the spirit of mutual solidarity, the Member State concerned shall refrain from any action likely to conflict with or impede Union action based on that decision and the other Member States shall respect its position. If the members of the Council qualifying their abstention in this way represent more than one third of the votes in accordance with Article 148(2) of the TEC, the decision shall not be adopted. (Article 23 TEC)1

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These two stipulations concerning CFSP were a compromise between those states that wanted to increase the efficiency of CFSP by using QMV and those states that were not willing to give up their veto in this important area. ‘Constructive abstention’ was a kind of ad hoc flexibility clause that would allow a smaller group of states to go ahead without being stopped by the ‘laggards’, among whom the UK was the main prospective actor. The treaty’s third section also added services and intellectual property to the common commercial policy in the first pillar. Contrary to the normal QMV provision of the old article 113, however, decisions in these new areas were to be made unanimously. Hence, the quest for an ‘effective and coherent external policy’ in this issue area as in some others was no more than a qualified success. In the area of institutional reform, which was the focus of the treaty’s fourth section, not much was achieved, despite the importance that had been attached to institutional changes at the outset of the IGC (Laursen 2002b). The main beneficiary of the innovations adopted was the European Parliament. The use of the assent and co-decision procedures was increased. In the end the increase in the use of QMV was more modest than expected. Furthermore, the difficult issues relating to the distribution of votes among member states in the Council, the threshold of QMV in the Council and size on the Commission were postponed. The treaty’s provisions on flexibility introduced general clauses in the common provisions of the Treaty on European Union (TEU), clauses specific to the Treaty Establishing the European Community (TEC or first pillar) and specific clauses for JHA (third pillar). The treaty set tight conditions for using the clauses enabling states to engage in ‘enhanced cooperation’, except in the second pillar on foreign and security policy, which, however, allowed for ‘constructive abstention’. Overall, the provisions of the Amsterdam Treaty represented an attempt by the member governments to find a balance between the at least partially conflicting demands of efficiency and legitimacy. On the one hand, the Danes’ initial rejection of the Maastricht Treaty in a referendum in 1992 and the EU’s incapacity to intervene effectively in the conflicts in former Yugoslavia still on their minds, the treaty makers were concerned to try to bolster popular support for the integration process. On the other, the EFTA states – Austria, Finland and Sweden – had all joined the EU in 1995 and ten more Central and Eastern European states were also now in the entry queue, forcing the existing members to grapple with the issue of how decision-making processes in the EU could be changed to avert the growing danger of paralysis as the number of member states grew and the EU became more diverse. In the end, the political leaders of the member states decided at Amsterdam that the next enlargement was still a few years off and that they could therefore postpone the resolution of the most difficult issues


relating to institutional reform, which subsequently became known as the ‘Amsterdam leftovers’ (Laursen 2002a). These formed the main bone of contention at the EU’s next IGC, which culminated in the Treaty of Nice, adopted after long and difficult summit negotiations in December 2000.

The Nice Treaty The main reforms of the EU institutions made by the Treaty of Nice concerned the re-weighting of votes in the Council, the expanded use of QMV, the Commission (especially its size and composition) and the scope for the practice of flexibility (or ‘enhanced cooperation’) (Laursen 2001b and forthcoming). The distribution of votes in the Council was changed so that the four biggest states, which had ten votes each, would each get 29 votes in the future. If population had been the sole criterion for the re-weighting of Council votes, Germany would have had to have been given more. Spain, which had eight votes, was to get 27, a very good result for that country. As its population was the same as Spain’s, Poland was allocated the same number. The Netherlands secured 13 votes, one more than Belgium, which had hitherto had as many votes as its Benelux neighbour. See Table 8.1 for the voting rights of all countries in the EU. Less controversially, the Treaty of Nice also redistributed seats in the EP by member state. The longstanding principle of parity in French and German representation in the EU’s organs had already been broken in respect of the parliament, following a minor reform that had been made after the Maastricht Treaty negotiations in 1992. The new treaty foresaw that Germany would retain the 99 seats it already had in the parliament, but that other existing member states would have fewer. The second significant institutional reform issue tackled in Nice related to the scope for QMV. Under the treaties as reformed in Amsterdam, unanimity was still required for decisions on about 70 topics. The IGC staged prior to the Nice summit discussed introducing QMV for about 45 of these. The outcome in Nice was that QMV was to be introduced in 35 areas – 23 from the date on which the treaty entered into force and 12 later. One of the most contentious issue areas in which QMV was introduced was external trade in services and trade-related aspects of intellectual property rights, save for culture and the audio-visual sector, in which France insisted on the retention of unanimous voting. From the outset, more than 20 treaty provisions, mainly of a constitutional or quasiconstitutional character, had been considered too sensitive to be subject to QMV. Hence they remained under the unanimity rule. The issue of the size and composition of the Commission was resolved only partially and temporarily. The new treaty foresaw that from January 2005 (later changed to November 2004) the Commission would comprise

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Table 8.1 Votes in EU-27 (as of 1 January 2005)

Germany United Kingdom France Italy Spain Poland Romania Netherlands Greece Czech Republic Belgium Hungary Portugal Sweden Bulgaria Austria Slovakia Denmark Finland Ireland Lithuania Latvia Slovenia Estonia Cyprus Luxembourg Malta Total EU 27 Qualified majority of votes

Blocking minority

Present votes

Future votes

10 10 10 10 8

29 82.03 29 59.25 29 58.97 29 57.61 27 39.39 27 38.67 14 22.49 13 15.76 12 10.53 12 10.29 12 10.21 12 10.09 12 9.98 10 8.85 10 8.23 10 8.08 7 5.39 7 5.31 7 5.16 7 3.74 7 3.70 4 2.44 4 1.98 4 1.45 4 0.75 4 0.43 3 0.38 345 481.18 258 (as well as a majority of member states)

5 5 5 5 4 4 3 3 3

2 87 62

26

Population (millions)

% of Union population 17.05 12.31 12.25 11.97 8.19 8.04 4.67 3.28 2.19 2.14 2.12 2.10 2.07 1.84 1.71 1.68 1.12 1.10 1.07 0.78 0.77 0.51 0.41 0.30 0.16 0.09 0.08 100 Furthermore at least 62% of the Union population, if a member state asks for control of this criterion

91

Source: Final version of the Nice Treaty, published in the Official Journal of the European Communities 2001.


one national from each member state but stipulated that once the EU reached 27 members, the size of the Commission must be reduced and a system of rotation – still to be negotiated – implemented. Nice also strengthened the role of the president of the Commission. In future, the president was to decide the internal organization of the Commission and reallocate responsibilities among the Commissioners during the Commission’s term of office. He (or she) was also empowered, after having obtained the Commission’s collective approval, to request a member of the Commission to resign. Although the general conditions under which ‘enhanced cooperation’ may be practised remained rather strict under the terms of the Nice Treaty, the scope for such cooperation was eased compared with Amsterdam. The Treaty of Nice made ‘enhanced cooperation’ easier, in as far as the participation of no more than eight member states was required for such projects to be launched, whereas the Amsterdam Treaty required a majority of the member states. It would no longer be possible, moreover, for any one member state to veto such cooperation in the first and third ( justice and home affairs) pillars. The exact rules relating to ‘enhanced cooperation’ still varied between the three pillars and remained rather complex (see Stubb 2002).

The post-Nice agenda, the European Convention and the 2004 IGC Despite declaring that the new treaty made the EU ready for the next enlargement, the leaders of the EU member states evidently harboured some doubts, as indicated by the fact that, before leaving Nice, they called for ‘a deeper and wider debate about the future development of the European Union’ and in particular decided to convene a new IGC in 2004. Among the issues for debate by this IGC that they identified were: how to establish and monitor a more precise delimitation of competencies between the EU and the member states, reflecting the principle of subsidiarity; the status of the Charter of Fundamental Rights proclaimed in Nice; a simplification of the treaties to make them – without changing their meaning – clearer and better understood; and the role of the national parliaments in the European architecture. In their declaration, the leaders referred – again – to ‘the need to improve and to monitor the democratic legitimacy and transparency of the Union and its institutions, to bring them closer to the citizens of the Member States’2. The decision to convene a new IGC taken at the same time as a new treaty was negotiated gave a clear sign that Nice was not the end of the road of the EU treaty revision process and that, following Maastricht, Amsterdam and Nice, the EU would soon be negotiating its fourth treaty in little more than a decade. The EU’s final shape was still an open question.

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The process by which the next treaty was to be prepared differed, however, from that by which the previous treaties had been negotiated. The European Council decided at Laeken in December 2001 that the 2004 IGC should be prepared by a convention, as had been the Charter of Fundamental Rights, the negotiation of which had run parallel with that of the Nice Treaty (Belgium, EU Presidency 2001). The Laeken summit decided that the ‘Convention on the Future of Europe’ should be chaired by the former French president Valéry Giscard d’Estaing and composed of one representative of each of the heads of state or governments of the 15 member states, 30 members of national parliaments (two from each member state), 16 members of the EP and two European Commission representatives. Candidate countries would also be involved, but without the right to vote. The novelty of the convention method was the relatively large involvement of members of both the European and national parliaments. The new treaty was to be negotiated through a more open process and following greater debate than its predecessors. The Convention’s draft constitutional treaty Giscard d’Estaing presented a provisional version of the European Convention’s draft constitution (European Convention (CONV) 2003a) to the meeting of the European Council in Thessaloniki, Greece, in June 2003 and the final draft at the Council’s meeting in Rome the following month (CONV 2003b). The most important treaty changes that the convention proposed were that: 1 2 3 4 5

6

The Union shall have legal personality (Article I-6). The Union shall recognize the rights, freedoms and principles set out in the Charter of Fundamental Rights (Article I-7). The limits of Union competences are governed by the principle of conferral – competences not conferred upon the Union in the Constitution remain with the member states (Article I-9). The constitution, and law adopted by the EU’s institutions in exercising competences conferred on it shall have primacy over the law of the member states (Article I-10). The Union shall have exclusive competences in the following areas: competition rules within the internal market, monetary policy (for the member states which have adopted the euro), common commercial policy, customs union, the conservation of marine biological resources under the common fisheries policy, and for the conclusion of a number of international agreements (Article I-12). The Union shall have shared competences in the following areas: internal market, area of freedom, security and justice, agriculture and fisheries (excluding the conservation of marine biological resources), transport


7 8

and trans-European networks, energy, aspects of social policy, economic and social cohesion, environment, consumer protection and common safety concerns in public health matters (Article I-13). The Union shall adopt measures to ensure coordination of the economic policies of the Member States (Article I-14). The Union may take supporting, coordinating or complementary action at the European level in these areas: industry, protection and improvement of human health, education, vocational training, youth and sport, culture and civil protection (Article I-16).

The draft constitution did not propose any very important changes in CFSP, which would continue to fall under unanimity, although in some cases ‘the European Council may unanimously decide that the Council should act by qualified majority’ (Article I-39). Specific provisions for implementing a common defence policy stipulated, however, that decisions must be taken unanimously (Article I-40). In contrast to the Nice Treaty, the draft did create some scope for ‘enhanced cooperation’ between member states in defence. One of the most debated novelties was the proposal to create a longerterm president of the European Council, to be elected by a qualified majority, for a term of two and a half years, ‘renewable once’ (Article I-21). The EU would hence have two ‘presidents’, with the danger that there could be (heightened) competition between a new president of the European Council and the existing president of the Commission. This division of political labour was to be complicated by the creation of an EU foreign minister, who would chair the Foreign Affairs Council and also be a vice-president of the Commission. In its other (sectoral) formations, the Council, however, would retain some kind of rotating presidency similar to the existing set-up. The Convention proposed that QMV become normal practice in the Council (Article I-22). Interestingly, it proposed that such a majority consist of ‘the majority of Member States, representing at least three fifths of the population of the Union’ (Article I-24). This formula would have simplified the cumbersome voting formula contained in the Treaty of Nice. The Convention also recommended that the Commission have only 15 members, including the president and the EU foreign minister, but added that the Commission ‘may call on the help of Associate Commissioners’ (Article I-25), thus making it possible for all member states to have either a Commissioner or an Associate. In a section on the ‘Democratic Life of the Union’, the Convention made two notable proposals: the first, designed to make the EU’s decisionmaking process more transparent, was that the Council should meet in public ‘when it is discussing and adopting a legislative proposal’ (Article I-49), and the second, reflecting growing concerns about excessive centralization of decision-making powers in Brussels, was that ‘when reasoned

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opinions on a Commission proposal’s non-compliance with the principle of subsidiarity represent at least one third of all the votes allocated to the Member States’ national Parliaments and their chambers, the Commission shall review its proposal’ (CONV 2003b: Annex 1). The IGC When the IGC opened in October 2003, some member states made clear their opposition to the convention’s draft treaty. In particular, the proposed new definition of a QMV – 50 per cent of the states, representing at least 60 per cent of the EU population – was not acceptable to the Spanish and Polish governments. They wanted to retain the Nice formula, which gave them more influence. Some countries also had problems with the proposed extension of QMV. The British government had some so-called ‘red lines’, i.e. non-negotiable items, related to issues of CFSP, taxation, the budget, social security and criminal justice. It also wanted further clarification concerning the incorporation into the treaty of the Charter of Fundamental Rights. The question of the composition and size of the Commission was still a contentious issue, with most small member states wanting to retain a Commissioner from their country. The French and German governments were among the few that had no problems with the proposed treaty. They pressed the other states for a speedy conclusion of the negotiations – unsuccessfully as it turned out, since, largely because of joint Spanish-Polish opposition to a change in the distribution of Council votes decided at Nice, an EU summit in Brussels in December 2003 failed to reach an agreement. After consulting the other member states closely, the Irish Council presidency, which began in January 2004, succeeded in relaunching the IGC in March (EU Constitution Project Newsletter 2004). A change of government in Spain after the spring elections was one of the factors that increased the chances of a treaty being adopted. The new Socialist government moved Spain to a more pro-EU line. It was willing to accept the double majority proposed by the convention, if not necessarily the exact percentages (half of the member states comprising 60 per cent of the EU’s population). Spain’s change of stance on this issue isolated Poland. The Polish government was very weak, which made it more difficult for it to compromise. But eventually it also accepted the double majority in principle. The Irish Presidency brokered an agreement on the treaty at a summit in Brussels in June 2004. The compromise on voting weights in the Council defined a qualified majority as comprising at least 55 per cent (15) of the states and representing at least 65 per cent of the EU population. One further stipulation was added: A blocking minority must include at least four states (Conference of the Representatives of the Governments of the Member States (CIG) 2004: 7). This applies to decisions based on a proposal from the Commission. In cases of decisions not based on proposals from


the Commission, e.g. some decisions within CFSP, JHA and EMU, ‘the qualified majority shall be defined as 72 per cent of the members of the Council, representing Member States comprising at least 65 per cent of the population of the Union’ (CIG 2004). On the size of the Commission, the small states accepted a compromise. The new Commission in office from November 2004 and its successor has one Commissioner per member state, but from 2014 the Commission will be reduced to two-thirds of the number of member states and equal rotation will be introduced, ‘unless the European Council, acting unanimously, decides to alter this figure’ (CIG 2004: 4). On the issue of the extension of QMV, the British government was largely successful in defending its ‘red lines’. Implications and consequences of the Constitutional Treaty The likely overall impact of the new treaty, should it be ratified by the member states and enter into force, is that the EU will continue its trajectory towards a more federal political system, even though references to federalism originally proposed by Giscard d’Estaing were deleted from the final convention draft, let alone the text finally adopted by the member governments. In so doing, the convention pre-empted the certain opposition of some member states to any treaty provisions that stated or suggested that the EU should become a federal state. The impact of some specific new treaty provisions may nonetheless prove problematic. Thus, the creation of a new president of the European Council may lead to turf wars between this office and that of the Commission president. There is also a risk of turf disputes between the new European foreign minister, who shall ‘conduct the Union’s common foreign and security policy’ (Article I-27), and the chair of the European Council, who is supposed inter alia to ‘ensure at his level that the Union is effectively represented in the wider world on issues concerning its common foreign and security policy’ (Article I-21). It is also unlikely that the treaty will mark a breakthrough in respect of foreign and security policy. Although the treaty abolishes the EU’s old pillar structure and makes the EU a legal personality, it does not extend the Community method to CFSP, whose policy-making mechanisms remain largely intergovernmental. Given the differences in member states’ foreign policies – as demonstrated in connection with the war in Iraq – it is clear that the EU is not about to become a coherent international actor. On balance, the treaty is likely, however, to make the EU more efficient and democratic. ‘Efficiency’ should be increased by the application of QMV to a broader spectrum of policies, albeit not to CFSP, taxation and some aspects of social policy. The greater participation of national parliaments in EU affairs may also enhance democracy (although the parliaments’ role

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is likely to prove very limited) as may the election of the Commission by the EP – although Commissioners will continue to be nominated by the member governments through the European Council. The degree of transparency of the EU decision-making process is likely to be increased by the fact that the Council’s legislative sessions will be held in public as well as the by the fact that the new treaty, although it is not as simple and short as most national constitutions, is much simpler than the existing European treaties.

Explaining recent treaty reforms Taken together, the recent European treaties have increased the scope of QMV, generally in connection with impending enlargements. The scope of the EU’s policy competences has likewise increased. The EP has also gradually become more involved in decision-making. This process was initiated by the co-decision procedure, which the Maastricht Treaty introduced and now becomes the norm in the new Constitutional Treaty. The EU is thus becoming a quasi-federal polity (Laursen 2003a and 2003b). Clearly in economic areas the EU is already quite federal, even if the British will not admit it, and the CFSP is at least confederal, in as far it involves some shared decision making (Sbragia 2004). On the one hand, scholars disagree on how far the EU has gone and how ‘federal’ it has become as well as on the reasons why it has become more integrated. On the other hand, intergovernmentalists argue that the member states are still very much in control and see the EU as an international regime created to assure the implementation of joint decisions. Other scholars – neofunctionalists (e.g. Lindberg and Scheingold 1970) – identify underlying, built-in, primarily economic forces that take the process further and further – through spillover processes. In a similar vein, historical institutionalists (e.g. Pierson 1996) see a certain path dependency where the states are no longer fully in control of the integration process. Moravcsik’s influential work emphasizes the centrality of governments’ rational calculations of economic interest as the main driving force of the integration process. Treaty revisions leading to closer integration may be explained in terms of a two-stage process involving first national preference formation and then interstate bargaining, in which the most powerful member states use threats of exclusion and veto to promote their interests (Moravcsik 1993). Sovereignty is ‘pooled’ and delegated to common European institutions, whose role is to ensure that the commitments that member states make in the treaties are ‘credible’ (Moravcsik 1998). With this approach, Moravcsik provides a plausible explanation of the Treaty of Rome and the SEA (which contained the single market programme) as well as of the EMU part of the Maastricht Treaty, but not of the other provisions of the Maastricht Treaty – those relating to CFSP, JHA and political union. To explain the latter, it is necessary to bear in


mind that Maastricht was negotiated at the end of the cold war and at the time of German reunification. Geopolitics, which Moravcsik brushes aside, was an important force driving the trend towards closer integration in these issue areas (Laursen 1992). The main motive for the Amsterdam, Nice and constitutional treaty reforms was the eastern enlargement which finally took place on 1 May 2004. Of course, there were economic interests in having the eastern enlargement. But such calculations did not unequivocally favour enlargement. Some of the existing member states had well-founded doubts about the economic advantages of enlargement. The French knew that enlargement would put pressure on the Common Agricultural Policy. The Spanish, Portuguese and Greek governments knew that enlargement would mean greater competition for money from the structural funds. Overall, it is difficult to explain the EU’s pursuit of eastern enlargement and the associated treaty reforms fully by using a rational economic model like Moravscik’s. A fuller explanation would recognize how the increasing volume of interactions between the member states had affected their calculations of their interests, creating more and more shared norms and ideas. One consequence of this process was the increased emphasis in the recent treaties on the democratic nature of the EU, including the rule of law and respect for human rights, highlighted by the incorporation of the Charter of Fundamental Rights into the constitutional treaty. Although national identities remain strong in Europe, this process has thus created elements of a European identity. The gradual development of this identity explains why, despite the economic and other misgivings of some of them, the 15 existing member states could not say ‘no’ to the former Communist states in Central and Eastern Europe (Schimmelfennig 2003). The prospect of enlargement in turn forced the member states to also look at institutional reform issues. In the end Amsterdam, Nice and the Constitutional Treaty are about creating a (more) legitimate and efficient as well as a much wider EU. Moravcsik’s ‘liberal intergovernmentalist’ approach can help us understand the adoption of some specific provisions of the post-Maastricht treaties – in particular the expansion of the scope of QMV – where domestic economic interests were decisive for national positions. But the positions adopted by member governments on the most controversial issues – the size of the Commission and the distribution of votes in the Council – were determined primarily by the relative size of their countries. By and large, these conflicts pitted the small member states against the big ones. How they are resolved directly affects member governments’ capacity to exercise influence on most future EU decisions. The capacity for exercising influence over EU decisions is closely linked to the size of the ‘blocking minority’, which depends in turn on the definition of a qualified majority (Moe 1990; Kerremans 1998). Inevitably, the bargaining over these issues was tough

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– and made all the more difficult by considerations of national prestige. Hence, at Nice, the French wanted to get as many votes as the Germans and the Belgians wanted to get as many as the Dutch, while the Spanish argued that there was a special Spanish problem, because they had got only eight Council votes when they joined (rather than ten like the biggest four member states) in exchange for being able, like these states, to nominate two European Commissioners, one of whom the Nice Treaty would cause them to lose. The adoption of the Nice Treaty’s provisions on these issues was facilitated by extensive recourse to side payments. The Germans were compensated for not being given more Council votes than the next three largest states by the provision that a QMV should also represent 62 per cent of the EU population. The Belgians were compensated for accepting one vote less than the Dutch by the promise that meetings of the European Council would gradually be shifted to Belgium and by an increase in the number of its seats in the EP. Similarly, Portugal was also compensated with extra representation in the EP for the treaty’s generous treatment of neighbouring Spain – which Portugal resented (Laursen forthcoming).

Conclusion: the EU as a supranational polity One of the EU’s founding fathers, Jean Monnet, once mentioned the ‘negative experience of international co-operation, whose institutions were incapable of decision-making.’ He therefore proposed ‘a joint sovereign authority’ for the first European Community, the ECSC, in 1950 (Monnet 1978: 295). He also wanted to ‘abandon the unanimity rule in favour of a new system in which, to everybody’s advantage, the idea of the common interest would replace that of the national interest’ (Monnet 1978: 353). None of the other integration schemes in the world have gone as far in the direction of giving common institutions ‘supranational’ powers as has the EU. In this sense the EU is certainly sui generis. Some scholars have argued that the EU is more than an international regime (or international organization) but less than a federal state (Wallace 1983). Echoing this analysis, Keohane and Hoffmann (1991: 10) have argued that (1) the EC is best characterized as neither an international regime nor an emerging state but as a network involving the pooling of sovereignty and (2) the political process of the EC is well described by the term ‘supranationality’ used by Ernst Haas in the 1960s. By emphasizing the central role played by supranational institutions in the EU Keohane and Hoffmann are more in line with neo-functionalist and multi-level governance perspectives on the integration process. At the same time, similar to Moravcsik, they acknowledge that ‘the EC has always rested on a set of intergovernmental bargains’ (Keohane and Hoffmann 1991). One thing is certain: through the creation of common institutions, the EU has gone further in pooling and delegating sovereignty than other


integration schemes. For the fate of the latter, an important issue is whether other mechanisms than the pooling and delegation of sovereignty in common institutions, as practised in the EU, can provide ‘credible commitments’ when there are temptations to defect from agreements or distributional issues to be resolved. The most obvious alternative means for ensuring the credibility of commitments is leadership (or hegemony). There can be no doubt that leadership is an important variable in processes of integration as already underlined by Lindberg and Scheingold (1970) and later by Mattli (1999) but largely ignored by Moravcsik. Thomas Pedersen has studied the role of France and Germany in the European integration process. He suggests that these two countries have exercised a kind of ‘co-operative hegemony’ (Pedersen 1998). Although France and Germany were at loggerheads in Nice, they again joined forces in the European Convention and the IGC in 2003–04, pushing for the adoption of the Constitutional Treaty. The threat of a formation of an avant-garde of member states around France and Germany was one of the ingredients that shaped the course of the negotiations. In the European context, therefore, it can be argued that leadership and strong common institutions have been ‘hand in hand’ rather than alternative ways of ensuring ‘credible commitments’. According to Carl Friedrich (1969), the process of federalization in Europe started in the 1950s. The Schuman-Monnet initiatives then put Europe onto a new trajectory, which has now culminated in the constitutional phase of the formation of a federal state. But the future and fate of this phase, which has brought the EU to the verge of becoming a genuine supranational polity, depends on the ratification of the Constitutional Treaty in the 25 member states. How the EU would deal with the rejection of the treaty in one or more member states is a question which in 2004 no one could yet answer with certainty.

Notes 1 2

Article 23 TEC (ex Article J.13), available at http://europa.eu.int. ‘Declaration on the Future of the Union to be Included in the Final Act of the Conference’, available at www.europa.eu.int/futurum/offtext/declaration_en.pdf.

References Belgium, EU Presidency (2001) ‘The Future of the EU: Declaration of Laeken’. Available at www.eu2001.be. CIG (Conference of the Representatives of the Governments of the Member States) (2004) ‘IGC 2003 – Meeting of the Heads of State or Government, 17/18 June 2004’, CIG 85/04, Brussels, 18 June. Available at http://ue.eu.int/uedocs/cmsData/docs/pressdata/en/misc/81109.pdf. CONF (Conference of the Representatives of the Governments of the Member States) (1996) ‘The European Union Today and Tomorrow. Adapting the

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European Union for the Benefit of its Peoples and Preparing for the Future. A General Outline for a Draft Revision of the Treaties’, CONF 2500/96, Brussels, 5 December. –––– (1997) ‘Draft Treaty of Amsterdam’, CONF/4001/97, Brussels, 19 June. CONV (European Convention) (2003a) ‘Draft Constitution, Volume I – Revised text of Part One’, CONV 724/03, Brussels, 26 May. –––– (2003b) ‘Draft Treaty establishing a Constitution for Europe’, CONV 850/03, Brussels, 18 July. Available at http://european-convention.eu.int/docs/Treaty/cv 00850.en03.pdf. EU Constitution Project Newsletter. (2004) ‘Towards a EU Constitution under the Irish Presidency’, London: The Federal Trust for Education and Research, 2: 4:2, April. European Council (1996) ‘Turin European Council 29 March 1996: Presidency Conclusions’, available at http://europa.eu.int/en/record/turin/html. European Convention (2003) Draft Treaty Establishing a Constitution for Europe, Luxembourg: Office for Official Publications of the European Communities. European Parliament, Commission des Affaires Constitutionelles (2001) ‘Projet du Traité de Nice (première analyse)’, PE 294.737, Brussels, 10 January. Friedrich, Carl J. (1969) Europe: An Emergent Nation, New York: Harper & Row. Hix, Simon (1999) The Political System of the European Union. New York: St Martin’s Press. Keohane, Robert O. and Hoffmann, Stanley (1991) ‘Institutional Change in Europe in the 1980s’, in Robert O. Keohane and Stanley Hoffmann (eds) The New European Community: Decisionmaking and Institutional Change, Boulder CO: Westview Press: 1–39. Kerremans, Bart (1998) ‘The Problem of Capacity and Control in an Enlarged EU Council’, in Pierre-Henri Laurant and Marc Maresceau (eds) The State of the European Union, vol. 4: 87–109. Laursen, Finn (1992) ‘Explaining the Intergovernmental Conference on Political Union’, in Finn Laursen and Sophie Vanhoonacker (eds) The Intergovernmental Conference on Political Union: Institutional Reforms, New Policies and International Identity of the European Community, Dordrecht: Martinus Nijhoff/Maastricht: European Institute of Public Administration: 229–248. –––– (2001a) ‘EU Enlargement: Interests, Issues and the Need for Institutional Reform’, in Svein S. Andersen and Kjell A. Eliassen (eds) Making Policy In Europe, 2nd edn, London: Sage: 206–228. –––– (2001b) Guide til Nice-traktaten: Baggrund, kommentarer og perspektiver, Copenhagen: The Danish European Movement. –––– (2002a) ‘Explaining and Evaluating the Amsterdam Treaty: Some Concluding Remarks’, in Finn Laursen (ed.) The Amsterdam Treaty: National Preference Formation, Interstate Bargaining and Outcome, Odense: Odense University Press: 639–655. –––– (2002b) ‘Institutions and Procedures: The Limited Reforms’, in Finn Laursen (ed.) The Amsterdam Treaty: National Preference Formation, Interstate Bargaining and Outcome, Odense: Odense University Press: 565–590. –––– (2003a) ‘International Regimes or Would-be Polities? Some Concluding Questions and Remarks’, in Finn Laursen (ed.) Comparative Regional Integration: Theoretical Perspectives, Aldershot: Ashgate. –––– (2003b) ‘The Convention’s Draft Constitutional Treaty: Towards a more federal EU?’, L’Europe en formation, 2: 59–76. –––– (ed.) (forthcoming) The Treaty of Nice: Actor Preferences, Bargaining and Institutional Choice, Leiden: Brill Academic Publishers.


–––– and Vanhoonacker, Sophie (eds) (1992) The Intergovernmental Conference on Political Union: Institutional Reforms, New Policies and International Identity of the European Community, Dordrecht: Martinus Nijhoff. –––– and Vanhoonacker, Sophie (eds) (1994) The Ratification of the Maastricht Treaty: Issues, Debates and Future Implications, Dordrecht: Martinus Nijhoff. Lindberg, Leon N. and Scheingold, Stuart A. (1970) Europe’s Would-Be Polity: Patterns of Change in the European Community, Englewood-Cliffs NJ: Prentice-Hall. Mattli, Walter (1999) The Logic of Integration: Europe and Beyond, Cambridge: Cambridge University Press. Moe, Terry (1990) ‘Towards a Theory of Public Bureaucracy’, in Oliver E. Williamson (ed.) Organization Theory, Oxford: Oxford University Press: 116–153. Monnet, Jean (1978) Memoirs, Garden City NY: Doubleday. Moravcsik, Andrew (1993) ‘Preferences and Power in the European Community: A Liberal Intergovernmentalist Approach’, Journal of Common Market Studies, 31: 4 (December): 473–524. –––– (1998) The Choice for Europe, Ithaca NY: Cornell University Press. Pedersen, Thomas (1998) Germany, France and the Integration of Europe: A Realist Interpretation, London: Pinter. Pierson, P. (1996) ‘The Path to European Integration: A Historical Institutionalist Analysis’, Comparative Political Studies, 29: 2. Sbragia, Alberta M. (2004) ‘The Future of Federalism in the European Union’, keynote address delivered at the European Community Studies Association Canada 2004 Biennial Conference, Montreal, 27–29 May. Schimmelfennig, Frank (2003) The EU, NATO and the Integration of Europe: Rules and Rhetoric, Cambridge: Cambridge University Press. Stubb, Alexander (2002) Negotiating Flexibility in the European Union: Amsterdam, Nice and Beyond, Houndsmills: Palgrave. UK, Labour (1997) ‘The Manifesto. We will give Britain leadership in Europe’. Wallace, William (1983) ‘Less than a Federation, More than a Regime’, in H. Wallace, W. Wallace and C. Webb (eds) Policy-Making in the European Community, Chichester: John Wiley.

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9

The development of ASEAN’s diplomatic and security culture Not beyond ‘flexible engagement’ Jürgen Haacke

Introduction In June 1998, against the backdrop of the Asian economic and financial crisis and serious diplomatic disagreements with neighbouring Myanmar, former Thai foreign minister Surin Pitsuwan called on members of the Association of Southeast Asian Nations (ASEAN) to adopt the concept of ‘flexible engagement’. ‘Flexible engagement’ was to allow ASEAN governments to publicly comment on and collectively discuss fellow members’ domestic policies when these would have cross-border implications, i.e. adversely affect other ASEAN states. Surin’s bold proposal constituted a multi-pronged challenge to ASEAN’s diplomatic and security culture (Haacke 1999).1 First, ‘flexible engagement’ appeared to challenge the principle of non-interference in the sense that agreement on the concept seemed designed to pave the way for unsolicited involvement in the domestic affairs of other states. Second, the proposal challenged the norm of quiet diplomacy because the concept was to explicitly allow for public criticism of one ASEAN country by another. And, third, by suggesting that the Association should become involved in intra-state issues if these entailed adverse consequences for other members, ‘flexible engagement’ also challenged the longstanding norm that ASEAN should not become implicated in bilateral or intramural disputes. Arguably, the proposal even threatened to remove the ambiguity that until then had allowed individual member states sometimes to engage in and/or tolerate perceived instances of interference without undermining regional stability. However, as emphasized by the Thai foreign minister at that time, ‘flexible engagement’ was not incompatible with the principle of non-interference. Rather, it was an attempt to delimit the range of situations in which individual member states would henceforth still be justified to appeal to the norm of non-interference to ward off outside involvement in their so-called internal affairs. Notably, the ‘flexible engagement’ idea also did not amount to the advocacy of a new security model. Nor was it meant to denote for ASEAN a sudden shift from a state-centric view of security to new security referents or a shift to an exclusive preoccupation with a new category of threats.

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In the event, the overwhelming majority of ASEAN countries rejected Surin Pitsuwan’s proposal, mainly because not to do so seemed to potentially open up a can of worms that could endanger intramural stability and, in some cases, jeopardize regime security. Having repulsed ‘flexible engagement’, ASEAN governments nevertheless agreed to henceforth allow for ‘enhanced interaction’. The difference between these two concepts at the time was subtle but significant in so far as ‘enhanced interaction’ implied that individual member states could comment on other members’ ‘domestic affairs’ although ASEAN should not. It reflected the realization of ASEAN decision makers that they ultimately could not prevent each other from publicly commenting on those intra-state developments that had a detrimental social, economic or political impact on other members or the Association as a whole. In other words, as a compromise, ‘enhanced interaction’ de facto condoned efforts of individual ASEAN leaders to take their colleagues to task on matters heretofore perceived as ‘domestic affairs’ if the issue at hand had cross-boundary implications, while still ruling out the legitimacy of such endeavours being undertaken under ASEAN’s auspices. Nonetheless, when put into practice, ‘enhanced interaction’ quickly proved deeply disruptive and divisive within the Association and led to the reassertion of ASEAN’s existing diplomatic and security culture (Kraft 2000; Ramcharan 2000; Haacke 1999).2 Despite having rejected ‘flexible engagement’, the Association nevertheless embarked on a number of procedural innovations in the face of regional adversity and mounting security challenges in the period up to 2001. First, ASEAN agreed on the establishment of a surveillance mechanism that was to help prevent a recurrence of the Asian financial and economic crisis, primarily by sharing and exchanging data and by providing for the possibility of communicating any concerns member states might have in relation to macro-economic developments in another member state. Second, in the environmental area, discussions about averting re-runs of the haze problem were coupled to pinpointing its causes in the political economy of particular countries. Third, ASEAN embraced Singapore’s proposal to organize a foreign ministers’ retreat where, it was suggested, frank intramural exchanges would be possible. This made sense because, as Carolina G. Hernandez (2001: 105; also see Wanandi 2001) had suggested ‘domestic, political and social challenges [faced by individual members] are likely to become ASEAN challenges’. Moreover, in the aftermath of international intervention in East Timor under Australian leadership in September 1999, ASEAN adopted a Thai proposal for an ASEAN Troika ‘to enable ASEAN to address in a timely manner urgent and important regional political and security issues and situations of common concern likely to disturb regional peace and harmony’ (ASEAN 2000). This was followed by the adoption of rules of procedure for the ASEAN High Council in 2001. Although useful instruments in and of themselves, closer inspection of these innovative steps suggested that in both

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conceptual and practical terms, none of the measures denoted a major development of ASEAN’s diplomatic and security culture because they upheld the status of norms such as non-interference, quiet diplomacy and the non-involvement of ASEAN in intramural disputes (Haacke 2003b). Interestingly, not even after 9/11 and members’ rising concern with non-traditional and transnational security threats has ASEAN’s shared normative terrain been significantly revamped or abandoned. This is illustrated, first, by the fact that notwithstanding ASEAN’s unprecedented censure of Myanmar in the wake of the violence at Depayin on 30 May 2003, the organization did not break with the non-interference principle. The point is reinforced, second, by the lacklustre support within Southeast Asia for Indonesia’s original proposal for the establishment of an ASEAN Security Community (ASC) that advocated a much larger role for ASEAN as a manager of regional order. Indeed, this proposal met significant intramural resistance before a consensus version was integrated into the Declaration of ASEAN Concord II (also known as Bali Concord II), adopted in October 2003. ASEAN’s diplomacy vis-à-vis Myanmar and some provisions of the ASC can be interpreted as signalling an acceptance in principle of the need for a cautious embrace of ‘flexible engagement’ under certain circumstances, albeit not necessarily in name. In other words, recent events show that ASEAN has formally pushed the accepted boundaries of a shared understanding in relation to the circumscription of the non-interference principle. The main point is that members now generally consider it to be legitimate for the association as a whole to take an active interest in members’ intra-state developments should these threaten the credibility or stability of the grouping. As argued above, this was not yet the case when Surin Pitsuwan first proposed ‘flexible engagement’. Nevertheless, the norms and practices of ASEAN’s diplomatic and security culture continue to possess considerable relevance, not least because they are perceived to help maintain national autonomy. The objectives of this chapter are twofold. The first is to examine in more detail both ASEAN’s collective stance vis-à-vis Myanmar since 30 May 2003 and the dual challenge to ASEAN’s diplomatic and security culture as embedded in the original Indonesian ASC proposal. The second is to understand the members’ motives in advocating or resisting the further evolution of shared interpretations of intra-regional norms. The chapter is organized into three sections. The first section deals with ASEAN’s diplomacy toward Myanmar between June and October 2003. The second focuses on the ASC proposal. The third and final section explores the reasons why ASEAN countries moved towards embracing under certain circumstances a truncated form of ‘flexible engagement’, while rejecting the latest major intramural challenge to its diplomatic and security culture inherent in Jakarta’s ideas about ASEAN’s future role as a manager of regional order.


Myanmar and ASEAN’s diplomatic and security culture Following weeks if not months of growing tensions in Myanmar between Daw Aung San Suu Kyi (ASSK) and her National League for Democracy (NLD), on the one hand, and the military regime, the State Peace and Development Council (SPDC), on the other (Steinberg 2003), the two sides became embroiled in a bloody encounter at Depayin on 30 May 2003. This incident left at least four people dead and saw ASSK being taken into ‘protective custody’. While shaken by this turn of events, ASEAN nevertheless postponed a formal collective response until the convening of the ASEAN foreign ministers’ retreat in Phnom Penh in mid-June. Such tardiness was in part a response to Myanmar’s attempts at crisis diplomacy to ‘clarify’ the incident of 30 May and to convince ASEAN partners that the measures adopted against ASSK were only temporary. However, it was also a reflection of the initial reluctance of some ASEAN states to become involved (New Straits Times 2003a). In the event, ASEAN foreign ministers used their retreat to let their Myanmar colleague U Aung Win know that the deadly clash of 30 May and the detention of ASSK constituted a set-back not only for Myanmar, but also for ASEAN as a whole. They took the additional step of inserting into the joint communiqué of their subsequent ministerial meeting (ASEAN 2003a) a paragraph that ‘urged Myanmar to resume its efforts of national reconciliation and dialogue among all parties concerned leading to a peaceful transition to democracy’. ASEAN foreign ministers moreover ‘welcomed’ Myanmar’s assurances that the preventive measures taken were temporary and looked forward to the early lifting of restrictions placed on ASSK and other NLD members. Last but not least, they also reaffirmed their continued support for the efforts of the United Nations Secretary General (UNSG) Special Representative Tan Sri Razali Ismail. At least in the international media this open rebuke of Myanmar has been widely interpreted as a manifest break with ASEAN’s non-interference principle (Straits Times 2003a; CNN 2003). The joint stand at Phnom Penh was followed up by further diplomatic initiatives by Indonesia and Thailand. Taking over the chairmanship of the ASEAN Standing Committee after the 36th Ministerial Meeting in Phnom Penh, Indonesia in particular was charged with working out a response to the challenge posed by political developments in Myanmar. Initially Jakarta proposed the invocation of the ASEAN Troika mechanism – an idea seemingly also supported, for example, by Malaysia and the Philippines – that was to involve sending an ASEAN delegation to Yangon to discuss a political solution to the crisis. The SPDC resisted this proposed course of action. The military regime equally let pass Jakarta’s crafty invitation to Myanmar’s foreign minister U Win Aung to attend the July 2003 ASEM Foreign Ministers’ Meeting in Bali in order to respond directly to European concerns about the political

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fall-out of the Depayin incident and ASSK’s detention. Myanmar’s leaders opted instead for bilateral crisis diplomacy vis-à-vis a range of neighbours and Asian powers, including Thailand, Malaysia, Indonesia, Japan and China, through which the SPDC leadership probably hoped it would discredit the NLD and its leader. The SPDC suggested that the latter would not remain in detention for ‘a long period’ but continued to hold her without providing a timetable for her release or showing interest in restarting discussions on national reconciliation with the NLD. While supporting Indonesia as the incoming ASEAN Chair, Thailand added its own diplomatic voice to resolving the political stalemate. Above all, Bangkok announced the idea of a road map that would see the SPDC commit itself to a timetable for the release of ASSK and the regime’s steady move toward democracy. Although its precise substance was not immediately divulged in public, Bangkok appeared to advocate a five-step plan for Burma’s political future ( Jagan 2003). The first stage of the road map would focus on the release of ASSK and other NLD leaders. Stage two would concentrate on confidence building between the government and the opposition. The drafting and the adoption of a new constitution would underpin stage three. Stage four would represent a transitional period that would culminate in the final stage: the organization of free elections. In addition, Thai foreign minister Surakiart Sathirathai put forward the idea of organizing a multilateral forum in which both regional and extraregional countries would discuss the situation in Myanmar and elaborate on the proposed road map. What later was termed the International Forum on Myanmar or ‘Bangkok Process’ was initially to include China and Japan, as well as selected member states of ASEAN and the European Union.3 Although first broached in July, it was apparently not before early August that Sukariart discussed the above two ideas with his Burmese counterpart. U Win Aung’s initial response was ambiguous and non-committal in substance.4 Seeking to pre-empt further pressure, General Khin Nyunt, former Secretary-1 of the SPDC and newly appointed prime minister, announced on 30 August that Myanmar would follow its own seven-step road map to achieve a ‘peaceful, modern and developed state’ (quoted in The New Light of Myanmar 2003 (see also Khin Maung Win 2004; Taylor 2004). A key plank and starting point of this ‘Myanmar Roadmap to Democracy’ was the reconvening of the National Convention, adjourned since 1996, to prepare the ground for a step-by-step process that would culminate in a ‘genuine and disciplined democratic system’. Notably, Khin Nyunt remained silent on the timetable for implementation. Neither was a possible date for the release of ASSK given. The lack of certainty about what would happen to ASSK proved to be a major reason why Bangkok and Jakarta in September redoubled their diplomatic efforts vis-à-vis Myanmar before the 9th ASEAN Summit in October 2003. However, the missions to Yangon of their respective special envoys, foreign minister Surakiart and former foreign minister Ali Alatas,


met with only limited success in so far as neither managed either to meet ASSK , who by this time was recuperating at home following surgery, or to receive an undertaking in relation to her other than that already expressed by Myanmar. Nevertheless, Indonesia and Thailand judged as significant the return of ASSK to house arrest in September 2003. At the Bali Summit General Khin Nyunt not surprisingly made much of this transfer from detention status. Seen in conjunction with Myanmar’s road map, it seems to have been a sufficient reason for ASEAN leaders to adopt a more conciliatory tone toward Myanmar. As the summit communiqué put it: The Leaders welcomed the recent positive developments in Myanmar and the Government’s pledge to bring about a transition to democracy through dialogue and reconciliation. The roadmap as outlined by the Prime Minister of Myanmar that would involve all strata of Myanmar society is a pragmatic approach and deserves understanding and support. The Leaders also agree that sanctions are not helpful in promoting peace and stability essential for democracy to take root. (ASEAN 2003b) While ASSK remained under de facto house arrest, Myanmar joined interested countries at the first meeting of the Bangkok Process in December 2003. At this juncture, the SPDC announced the re-launch of the National Convention, which began on 17 May 2004. In contrast to the vast majority of ceasefire groups within the country, however, the NLD refused to participate in view of the regime’s failure to agree to its ‘minimal conditions’ for attending.5 Against such a backdrop, it is not surprising that political developments in Myanmar would again be discussed in the proceedings of the 37th ASEAN Ministerial Meeting in Jakarta in June 2004. In its joint communiqué (ASEAN 2004b), ASEAN indirectly reiterated its criticism from the previous year as it ‘recalled and emphasized the continued relevance of the Joint Communiqué of the 36th ASEAN Ministerial Meeting and the Chairman’s Press Statement of the 9th ASEAN Summit’. ASEAN foreign ministers also ‘underlined the need for the involvement of all strata of Myanmar society in the on-going National Convention’. However, in what could be interpreted as an implicit signal to both the SPDC and ASSK, ministers ‘encouraged all concerned parties in Myanmar to continue their efforts to effect a smooth transition to democracy’ (ASEAN 2004b). A breach of the non-interference principle? Although ASEAN countries clearly sought to steer Myanmar’s military regime toward democracy and reconciliation in the aftermath of the Depayin incident, it does not necessarily follow that the association thereby ignored, let alone abandoned, the principle of non-interference as one of its pillars

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of intramural conduct. First, notwithstanding their collective position encapsulated in their 2003 joint communiqué, several ASEAN foreign ministers at the time were at pains to argue that contrary to widespread media coverage and public perception, ASEAN governments regarded neither the extensive discussion of political developments in Myanmar at the ASEAN foreign ministers’ retreat nor what appeared to be a stern formal admonition of Yangon in the communiqué as constituting a breach of the principle of non-interference. As Singapore’s foreign minister, S. Jayakumar, put it: I would not view this as an interference in the internal affairs because the principle of non-interference continues to be a principle – not only for ASEAN, I mean it’s a principle of international law and is in the United Nations Charter. But what happened here was that ASEAN has developed to a point where we feel comfortable talking about each other’s concerns on a matter which might have taken place in one of our countries. ( Jayakumar 2003a) Other ASEAN foreign ministers essentially expressed the same point, while hinting more strongly at how the communiqué to them nevertheless represented an important development. The Philippines’ foreign minister, the late Blas Ople, for instance, expressed as follows his sense of the evolving shared understandings about how ASEAN could become involved in the affairs of fellow members irrespective of the continued regard for noninterference: Now with the Myanmar precedent, the principle still stands. But no country from here on may claim absolute immunity from collegial scrutiny if certain policies or acts of commission or omission tended to put the whole organization in disrepute or undermine its credibility. (quoted in Sun Star Network Online 2003) Possibly the key argument used to dismiss the notion that ASEAN had broken with its non-interference norm was that Myanmar’s foreign minister had not only found the retreat a congenial locus to transmit the SPDC’s point of view, he had also been comfortable both with discussing Myanmar and with the formulation used in the communiqué ( Jayakumar 2003a). This assessment was articulated in a similar vein by ASEAN Secretary General Ong Keng Yong, who characterized ASEAN’s position as merely one of keeping tabs on developments in Myanmar. In considering whether non-interference remains significant for ASEAN governments, it is of course also relevant that the association has continued to officially express its continued commitment to this principle.


How, then, should we assess the implications of ASEAN’s stance on Myanmar following 30 May 2003 for its diplomatic and security culture? The answer is necessarily somewhat ambiguous. On the one hand, it is evident that ASEAN states – both collectively and individually – exerted significantly more effort than at any previous time to influence the domestic politics of a member. Indeed, ASEAN’s response had a distinct air of ‘flexible engagement’ about it. On the other hand, the diplomatic efforts examined above constitute a less radical change in ASEAN’s normative terrain than first meets the eye. First, if ASEAN’s response was a form of ‘flexible engagement’, the parameters within which it was practised seemed narrower than those originally proposed by Surin in so far as confronting Myanmar really served to avert trouble for the association as a whole. Indeed, unlike in 1998, when Thailand pushed the idea of ‘flexible engagement’ to transpose bilateral difficulties with Myanmar into an issue for the association, the practice of ‘flexible engagement’ in 2003 proceeded on the understanding that events in Myanmar did affect ASEAN as a regional grouping because they manifestly undermined the association’s international image. Second, while ASEAN resorted to a choice of words in the communiqué that could easily be interpreted as a formal dressing down of Myanmar, the deliberations between U Win Aung and his ASEAN colleagues and those between SPDC leaders and their counterparts remained internal or private. In sum, ASEAN’s stance towards Myanmar following the Depayin incident can be categorized as an initial, conditional and incomplete embrace of ‘flexible engagement’ rather than the kind of conduct that a pristine practice of the concept would have involved. The question to be addressed in the next section is to what extent members’ agreement on the ASC confirmed the move toward ‘flexible engagement’ in the development of ASEAN’s diplomatic and security culture.

The compromise on the ASEAN Security Community (ASC) In October 2003, ASEAN leaders agreed on the goal of establishing an ASEAN Security Community (ASC) as one of three pillars of an ASEAN Community. As spelled out in the Declaration of ASEAN Concord II, or Bali Concord II, the ASC is ‘envisaged to bring ASEAN’s political and security cooperation to a higher plane to ensure that countries in the region live at peace with one another and with the world at large in a just, democratic and harmonious environment’ (ASEAN 2003c). Notably, the concord also recognizes the security of members ‘as fundamentally linked to one another and bound by geographic location, common vision and objectives’. Recognizing the prevalence of trans-boundary and transnational security problems, it moreover stipulates that ‘ASEAN shall explore innovative ways to increase its security and establish modalities for the

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ASEAN Security Community, which include, inter alia, the following elements: norms-setting, conflict prevention, approaches to conflict resolution, and post-conflict peace building’. Although vague, the tone of these specific provisions makes for an interesting contrast with earlier core political ASEAN documents. In particular, the reference to ‘democracy’ as a political objective in an ASEAN document of this nature is unprecedented and potentially very significant (although the precise implications of this objective for intramural conduct have not yet been spelled out). Seen in this light, the Bali Concord II could be viewed as another indication of a possible departure for the development of new understandings relating to ASEAN’s diplomatic and security culture. On the other hand, it is equally possible to see the glass as being half empty and the political commitments mentioned above as at best weak. Indeed, when read in conjunction with other parts of the declaration, the significance of these provisions must be in some doubt. After all, the concord re-emphasizes and builds on core documents of sub-regional multilateralism, such as the 1971 ZOPFAN Declaration, the 1976 Treaty of Amity and Cooperation, and the 1976 Declaration of ASEAN Concord. To achieve the ASC, members are also meant to: abide by the UN Charter and other principles of international law and uphold ASEAN’s principles of non-interference, consensus-based decision-making, national and regional resilience, respect for national sovereignty, the renunciation of the threat or the use of force, and peaceful settlement of differences and disputes. (ASEAN 2003c) The relevance of the non-interference norm is further highlighted on at least two other occasions. By stressing the continued validity of ASEAN’s longstanding normative terrain in this way, ASEAN governments introduced ambiguity if not tension into the concord. Bearing in mind what was said above about ‘flexible engagement’, it is perhaps best to read the final consensus version of the ASC as providing weak endorsement of a move toward ‘flexible engagement’. This seems appropriate because ‘flexible engagement’ proposed merely delimiting the scope of a justifiable invocation of non-interference rather than its wholesale abandonment. This assessment still stands even if we recognize that the final ASC text is only a pale reflection both of the original ASC proposal formulated by Dr Rizal Suma from the Centre for Strategic and International Studies (CSIS) in Jakarta (Sukma 2003) and that presented to ASEAN colleagues by Indonesia’s Department of Foreign Affairs. Particularly the former was considerably more explicit in advocating a more courageous move toward greater flexibility in applying ASEAN’s existing diplomatic and security culture, especially in relation to issues with


trans-boundary effects and those with an identifiable humanitarian dimension (Sukma 2003). If the ASC thus at least sets the scene for practising a version of ‘flexible engagement’ in the future, the compromise enshrined in the Bali Concord nevertheless entailed the repudiation of a further and more fundamental challenge to ASEAN’s diplomatic and security culture contained in the original ASC proposal. The ASC and its focus on the management of regional order Sukma’s original proposal (Sukma 2003) argued that ‘an ASEAN Security Community should be a community capable of managing, countering and defeating threats to regional security and stability’. This implied that ASEAN should play a larger political and security role in managing regional order in Southeast Asia. Given ASEAN’s existing institutional vehicles and practices, another implication was that the association ought to strengthen its collective capability to prevent, manage and resolve intra-regional conflicts.6 These ideas clearly struck a chord within Indonesian policy-making circles, not merely with the Department of Foreign Affairs but also with the Army and the president. Speaking on the occasion of ASEAN’s thirtysixth anniversary in August 2003, Megawati Sukarnoputri (2003) argued that the ASC should be something ‘in which [the ASEAN countries] share responsibility in responding to threats to regional harmony and security as well as to the need in creating a truly regional order’. Barely a month later, army chief General Ryamizard Ryacudu expressed support for the idea of joint exercises ‘where possible’ to take on the challenge of terrorism (Ahmad 2003). To this foreign minister Hassan Wirayuda added that ASEAN should be empowered as regards conflict resolution, peacekeeping and peace-building (quoted in The Jakarta Post 2003a). And with only days to go to the 9th ASEAN Summit, the foreign ministry’s spokesperson (quoted in The Jakarta Post 2003b) enthused that ASEAN leaders were ‘placing the building blocks for an ASEAN-wide cooperation to combat terrorism and set up mechanisms for conflict prevention and resolution’. As originally conceived and then proposed (but not agreed), the ASC project should be seen as heralding a challenge to ASEAN’s diplomatic and security culture that is analytically distinct from that embedded in the concept of ‘flexible engagement’. More specifically, the notion that ASEAN should assume greater responsibility for regional security also challenged the association’s diplomatic and security culture on three fronts: non-interference, quiet diplomacy and the norm of non-involvement of the association in intra-regional disputes. While emphasizing cooperation and the peaceful settlement of conflict, Indonesia’s ideas about conflict prevention and resolution raised questions about their compatibility with non-interference in those instances in which ASEAN countries would

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be reluctant to consent to relevant missions. Indonesia’s ASC draft also embodied a potential challenge to the norm of quiet diplomacy in view of the apparent interest in Jakarta in much greater formalization of dispute settlement within the association. Above all, however, Indonesia’s draft proposals challenged ASEAN’s diplomatic and security culture because they suggested that ASEAN should in future play the primary role in addressing intra-regional conflict and help to settle longstanding disputes among members. In the event, the concord in fact toned down and largely crushed these challenges inherent in the original ASC drafts. As regards non-interference, this point has already been argued above. Second, while the concord sees the ASEAN High Council as ‘the important component of the ASEAN Security Community’, a point of little extra value in view of previous official pronouncements, the concord does not introduce the establishment of new mechanisms along the lines of the original drafts for the ASC. Third, the ASC provisions are also very clear about the consensus within ASEAN that the association is not a ‘defence pact, military alliance or a joint foreign policy’. Indeed, rather than detailing new common approaches, the declaration expressly recognizes the ‘sovereign right of the member countries to pursue their individual foreign policies and defence arrangements’. In a nutshell, the final consensus version of the ASC text embraces the status quo. The same seems to be coming true for the development of an appropriate plan of action to foster the ASC. Jakarta’s proposal that ASEAN should establish a peace-keeping capacity by 2012, although only one of many ideas, was found particularly troubling, not least because it again suggested that the association should mediate in intra-regional conflicts.7 While full details of the ASC Plan of Action were only to be released at the 10th ASEAN Summit in Vientiane in November 2004, it is apparent that most members have not been willing to agree to yet further reshaping of established understandings in relation to the norms of non-interference, quiet diplomacy and the norm that ASEAN as a grouping should not become involved in intramural disputes. The tentative embrace of a moderated form of ‘flexible engagement’ concerning the crisis in Myanmar, on the one hand, and the rejection, on the other, of the challenges to ASEAN’s diplomatic and security culture contained in Indonesia’s proposal that ASEAN become more of a manager of regional security raise at least one important question: why did ASEAN countries give thumbs up to the one and thumbs down to the other?

The limited development of ASEAN’s diplomatic and security culture This section is divided into two parts. The first will look at the motivations underpinning ASEAN’s move toward ‘flexible engagement’ reflected in its reprimand of the military regime in Myanmar in 2003; the second will focus on the reasons why the challenge to the association’s diplomatic


and security culture contained in Indonesia’s regional order proposal was repudiated. Explaining not least Bangkok’s diplomatic manoeuvrings in July 2003, Thai foreign minister Surakiart Sathirathai (BBC (British Broadcasting Corporation) 2003c) argued that ‘[we] are trying to find an exit for the Myanmar Government, and also reduce pressure from the international community’. To avert potential political fall-out was also put down as the reason by Indonesian Department of Foreign Affairs spokesperson Marty Natalegawa, who similarly suggested that the ‘longer the issue is allowed to be unresolved, the more it would constitute a setback’ (quoted in New Straits Times 2003b). ASEAN Secretary General Ong Keng Yong (quoted in BBC 2003d) formulated the rationale as follows: ‘ASEAN’s credibility, ASEAN’s image and ASEAN’s international standing could be affected if we are not seen to be looking at the situation in Myanmar’. These statements indicate that at least two factors informed ASEAN’s unprecedented rebuke of Myanmar in June 2003 as well as the subsequent diplomatic initiatives vis-à-vis Yangon: (1) external pressure and (2) concern about damage to ASEAN’s international standing. External pressure The SPDC’s strong-fisted decision to place ASSK under ‘protective custody’ following the Depayin violence generated significant outrage in most Western capitals, not least because this development severely dented their expectations about the prospects for political change, which had been raised after her release from house arrest in 2002. Washington considered the armed clash involving ASSK’s convoy and pro-government protesters a ‘premeditated ambush’. The Depayin incident and ASSK’s detention immediately triggered direct and indirect pressure.8 What is of primary interest here is how Western powers put political pressure on ASEAN because of Myanmar. This was applied systematically. Initially, the US State Department threatened to review the utility of the activities of the UNSG Special Representative Tan Sri Razali Ismail (BBC 2003a). In a warning addressed to ASEAN as much as the SPDC, US Secretary of State Powell then suggested that he would press the case at the ASEAN Regional Forum (ARF). Giving evidence to the US Senate, another State Department official (Cranger 2003) meanwhile argued that it was ‘time for Asian countries to take responsibility of the actions of the Burmese junta . . .’. As President Bush signed the Burmese Freedom and Democracy Act of 2003, he urged ASEAN ‘to continue to make clear to the regime that its behaviour is inconsistent with ASEAN’s standards and goals’ (Bush 2003). Throughout this time Washington reiterated unambiguously that it was not prepared to accept Myanmar as a future chair of the ASEAN Regional Forum without the country first having seriously addressed the process of national reconciliation and made palpable efforts toward regime change.

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External pressure on ASEAN in relation to Myanmar was also brought to bear by the European Union (EU). In June 2003, the EU quickly decided on the immediate implementation of intensified sanctions that had been agreed in the form of a revised ‘Common Position on Burma/ Myanmar’ adopted the previous April (Council of the European Union 2003). In addition, suggestions surfaced that the EU might re-open discussions about Myanmar’s participation in the ASEAN-EU ministerial meetings. The European Union also used the ASEM Foreign Ministers’ Meeting in late July 2003 to press ASEAN states for an immediate release of ASSK (ASEM 2003). Pressure, some of it more indirect, was also exerted on ASEAN from other quarters. Thus, in August 2003 UN Special Rapporteur of the Commission of Human Rights for Myanmar, Paulo Sergio Pinheiro, filed a report for the General Assembly in which he argued that ‘the May 30-related developments have constituted a potentially terminal setback on the political front and, for that matter, for the human rights situation in the country’ (United Nations Human Rights Commission 2003). This seemed to play into the hands of those who wanted the issue to be referred to the United Nations Security Council. To ignore these developments and admonitions was simply not an option for ASEAN. Underlying ASEAN’s decision to take Myanmar to task over Depayin and ASSK’s detention was, moreover, the fear that ASEAN would suffer another serious and perhaps near-fatal blow to its collective standing if it failed to respond. This apprehension can be understood against the backdrop of some (belated) embarrassment in the eyes of many within the association at having allowed Myanmar to join in the first place. A further aspect is that ASEAN always insisted that its way of dealing with Myanmar was more appropriate than other – more confrontational – approaches. The events at Depayin showed ASEAN leaders, however, that the core leadership of the military regime had an unreformed outlook on the political situation in Myanmar. This raised serious questions about the effectiveness of ASEAN’s approach to the problem of national reconciliation in the country. Unless ASEAN was to be castigated for continuing to rely on the ‘ASEAN way’, something had to be done. ASEAN’s collective diplomatic response to Myanmar in the time between June and September was not simply the product of shrewd calculations. It was also motivated by irritation. Some member governments disliked the fact that the Depayin incident and Myanmar’s domestic politics more generally had forced the association again to turn its attention away from the economic agenda that they thought was best for the grouping. Most were appalled to see the events in Myanmar undermine diplomatic efforts of the Special Envoy of the UN Secretary-General for Myanmar. The appointment of Razali Ismail, a Malaysian, had been meant to serve not only the purpose of advancing national reconciliation in Myanmar but also the added objectives of keeping within acceptable


bounds the level of friction between Myanmar and international society and avoiding the need for ASEAN to become directly involved in sorting out the complex political problems of a member increasingly identified as a pariah state. Several were also offended at seemingly being ‘led by the nose’. As the SPDC’s suggestion that ASSK’s protective custody would be only temporary seemed to amount to little more than rhetoric and a tactical diversion, ASEAN experienced a new quality of frustration among members. This was particularly evident in Kuala Lumpur. Indeed, notwithstanding an element of theatre involved in so far as he was soon to leave the political stage, Dr Mahathir threatened in July that Myanmar might ultimately have to be expelled from ASEAN as ‘a last resort’ (BBC 2003b). Other ASEAN countries disagreed with the statement, later dutifully qualified, but nevertheless shared the sense of frustration that underpinned it. It is telling that even those who would not normally support singling out a member for collective criticism found the overall situation to be such that a public statement of ASEAN’s expectations vis-à-vis Yangon was appropriate or at least acceptable. Having thus moved toward a moderate form of ‘flexible engagement’, ASEAN members were soon confronting the issue of whether the text of the planned Bali Concord should ratify their new practice. In the event, three reasons seem to have led them to support a compromise that at least potentially allows for a repetition of the diplomatic efforts undertaken by the association toward Myanmar after the Depayin incident. First, with the precedent of a move toward ‘flexible engagement’ now available, ASEAN states in the main seem to have found it politically opportune to offer a cautious endorsement of the practice. Second, it appears that member states considered the safeguards of any undesirable extension of this diplomacy to be sufficiently strong, not least because the text of relevant passages of the ASC remained sufficiently qualified by other parts of the document. Cautiously endorsing a move towards ‘flexible engagement’ also seems to have been viewed as politically prudent as it would have been unwise to seek a document bearing no hallmarks of the original Indonesian proposal because this would have offended Jakarta. Nonetheless, to all member states except Indonesia, it was one thing to agree to language suggesting ASEAN might resort to ‘flexible engagement’ again in the case of a major threat to ASEAN’s credibility but another to agree to ASEAN assuming greater responsibility for preventing, managing and resolving conflict and thus becoming a more powerful provider of regional security. Reasons for rejecting the core of the original ASC proposal Indonesia’s venture to make ASEAN a provider of security in Southeast Asia attracted great interest among other members, but also considerable bewilderment. The reason for this was that the initiative was viewed as

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lacking in form, in so far as Indonesia had not consulted other member states sufficiently before launching it publicly, and deemed ambitious if not undesirable in substance. Even before discussions on the draft had gone very far, Indonesia’s government was suggesting, perhaps with East Timor primarily in mind, that the formation of an ASEAN Security Community was necessary because the region needed to create a climate that guaranteed the security of the region so that no external power could interfere in it (Ganjanakhundee and Pinyorat 2003). Subsequent Indonesian remarks additionally revealed a link between Indonesia’s plans for the ASC and unease with ‘unilateralism’. In the words of Indonesia’s president: ASEAN must act together with the international community to restore the rightful place of multilateralism in relations between and among nations. . . . At the regional level, ASEAN should strengthen and consolidate its cooperation to enhance its capacity for preventive diplomacy and conflict resolution. (Megawati Sukarnoputri 2003) Irrespective of the merits of the details of the substantive proposal, the impression thus arose that Jakarta was de facto steamrolling ASEAN into embracing a discourse and agenda that was not of all members’ choosing. Indeed, some ASEAN countries also found themselves the target of soft invective. As Megawati Sukarnoputri (2003) put it, ‘If ASEAN in recent years seems to have been moving rather slowly, it may be because it has been going forward on only one leg – the leg represented by economic cooperation’. If perceived problems of communication and the stated rationale already were reasons for offence, Indonesia’s partners in ASEAN also struggled with and/or found unpalatable the implications of the ASC’s proposed role for ASEAN as a provider of regional security. To appreciate this point, it is necessary to recall that ASEAN’s diplomatic and security culture has constituted a normative terrain that has allowed Southeast Asian countries to co-exist, to mediate divergent interests and to attain mutual accommodation if not reconciliation. Additionally, this diplomatic and security culture has allowed and led ASEAN states to pursue foreign and security policies that have given external powers a significant role in maintaining a stable regional order. While ASEAN’s diplomatic and security culture itself provides a pillar of regional order in Southeast Asia, bilateral alliances and relationships and other multinational frameworks for security cooperation are considered crucial elements of regional order. Indonesia’s ASC proposal not only challenged ASEAN’s diplomatic and security culture in relation to key norms but also the order of which the latter have been a part. It did this especially by dint of the suggestion that ASEAN should preferably autonomously do much more to prevent, manage and resolve regional security issues.


The question of existing capacity aside, the ASEAN countries have been extremely reluctant to embrace a different vision for the management of regional overall security. At the time of the proposal’s enunciation, the Philippines and Thailand were on the way to being designated by Washington as major non-NATO allies. Singapore has long been a de facto ally of Washington that regards the US as an indispensable cornerstone of regional security. Other ASEAN countries too have appreciated the successful role that the United States has played in upholding regional stability. Even where the US approach to security has been found wanting or unbalanced, such concerns have generally been more than outweighed by the advantages associated with a strong US economic and military presence in the region. The actual or potential role of the United States in combating trans-national threats to security is also widely appreciated. Resistance to the idea of ASEAN countries collectively providing regional security in Southeast Asia also fed on the assumption that, as Southeast Asia’s largest and most populous country, Indonesia would claim to deserve a leadership role. After all, it is well known that Jakarta has a longstanding sense of entitlement. While other member states appreciate full well that Jakarta is keen to regain lost status both regionally and internationally, regional governments remain sensitive to any proposal for institutional development that might suggest a claim to subregional hegemony on the part of Indonesia. Even in parts of continental Southeast Asia Indonesia’s ASC discourse was perceived as a challenge to national leadership pretensions in this sub-region, if not in the association as a whole. When approached by Jakarta, Thailand gave the idea of establishing the ASC only cautious backing, attaching the proviso that its adoption must be dependent on consensus. Member states by and large disagreed with Indonesia’s stated analysis that successful instances of third-party mediation and resolution of bilateral territorial conflicts already demonstrated ASEAN’s maturity. The reality for most has been that member states’ willingness to agree to third-party resolution, including the International Court of Justice, cannot be taken for granted. Similarly, most members’ appetite to participate actively in addressing intra-state or bilateral disputes is significantly lower than Jakarta’s. The idea of enhancing the association’s collective institutional capacity to prevent, manage and resolve conflict situations was therefore quite controversial. While some members supported Jakarta in stressing the need to operationalize the existing and proposed ASEAN mechanisms, others argued that not all bilateral issues could be resolved on a multilateral basis. Other member states’ reluctance to accept Indonesia’s ASC proposal in its original form does not imply that they have not favoured greater intramural cooperation. As Singapore’s foreign minister S. Jayakumar already argued in 2000:

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We must move swiftly and decisively to deal with regional transnational problems such as the environment, piracy and drugs. This requires political will. It does not mean compromising sovereignty. But it does require greater co-operation and pooling of our resources to deal with problems that countries cannot handle on their own separately but yet can affect the others. ( Jayakumar 2000) In short, while all ASEAN states could live with the consensus on Myanmar, most found the core of the ASC proposal to be too ambitious and not necessarily in their interest. As the Bali Declaration (ASEAN 2003c) says, the ASC ‘reflect[s] ASEAN’s determination to move forward at a pace comfortable to all (author’s emphasis)’.

Assessment and outlook In June 2003, Kavi Chongkittavorn (2003) surmised that ‘[s]trange as it may seem, Suu Kyi’s detention could serve as a new catalyst for ASEAN to broaden its common political and security views’. In the event, in its collective response to the 2003 Myanmar crisis ASEAN did embrace enhanced interaction along the lines of a version of the ‘flexible engagement’ concept originally outlined by Surin Pitsuwan. This paper identified external pressure on the association and a shared concern about its international standing as the driving forces of this development. The Declaration of ASEAN Concord II is consistent with this development. Notwithstanding this development, ASEAN’s diplomatic and security culture has not undergone significant change. Indeed, the evolving understanding that it is legitimate for members to involve themselves collectively in the domestic affairs of fellow members also serves to preserve the norm of interference by circumscribing the number of circumstances or situations in which a member state could legitimately raise the reproach of interference. This is a road that ASEAN has travelled since 1998, and it is one that requires careful navigation around omnipresent political potholes. Although ASEAN now has a precedent of sorts, it is still not easy to make predictions about the outcome of future cases. To the extent that intra-state disputes with cross-border implications and transnational challenges have been accepted at all as legitimate intramural issues for ASEAN involvement, this applies only in certain circumstances and even then only in principle. ASEAN’s evolving consensus is also not necessarily coupled to an acceptance of public scrutiny or procedures entailing a possible move away from quiet diplomacy. Most significantly, while a cautious embrace of the idea of more routinely exercising collective diplomacy towards individual members threatening ASEAN’s collective reputation is in the offing, this development is not paralleled by a commitment to charge ASEAN or


any of its members with becoming the pricipal provider of regional security. This has been unambiguously illustrated by the intramural reaction to Indonesia’s ASC proposals. One should therefore expect ASEAN’s normative terrain to evolve only gradually. First, conceptions of national identity remain rather uneven in Southeast Asia as shown by the divergence of political systems and statesociety relations. Second, the new members in particular still face threats to regime security that make them especially wary of lowering their normative shield. While regime security concerns have been particularly prevalent in the new member states, they have not been exclusive to them. Third, a number of countries in both continental and maritime Southeast Asia continue to feel vulnerable to outside forces more generally. This is particularly the case where the countries in question are weak states or face considerable challenges as a result of their geographical setting or spread. At the same time, several ASEAN countries also have ethnic and religious divisions that threaten their territorial integrity and/or national stability. Myanmar is a case in point. Fourth, while ASEAN countries all endorse at least some measure of economic interdependence and globalization, a strong sense of nationalism still underpins the engagement of a fair number of them with the outside world, especially when confronting foreign governments that are publicly committed to influencing approaches to domestic governance. Fifth, although domestic and external security considerations are crucial in understanding the continued salience of ASEAN’s diplomatic and security culture, most ASEAN states also seek routinely to resist developments that are perceived as attempts to establish (sub-) regional hegemony. This is less a security than a political issue about who, if anyone, from within the region is entitled to chart the region’s course in particular ways. ASEAN’s diplomatic and security culture, with its emphasis on sovereign equality and hence the ability of all members to pursue their national interests in their own particular manner, has not prevented instances of identity conflict, but it has at least in the past tended to assuage and help manage the effects of struggles for recognition and security. In other words, it would be a mistake to believe that ASEAN’s commitment to its longstanding normative framework simply derives either from an intramural divide on the issue between old and new members or is down to an outmoded obsession with non-interference. Rather, this commitment, particularly to the norm of non-interference, is explained by concerns about security, broadly understood, and a fairly strong view among ASEAN leaders that, irrespective of their geographical size, sense of entitlement or respective endowment of national power, they should not be dictated to by their colleagues. As such, it is therefore unlikely that any time soon a consensus will emerge within Southeast Asia that will see ASEAN fully embrace – let alone move beyond – ‘flexible engagement’.

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Notes 1

2 3 4 5 6

7 8

See Haacke (2003a) for a fuller account of ASEAN’s diplomatic and security culture. Core norms of this culture are sovereign equality, non-interference and non-intervention, the non-resort to force or the threat to use force, quiet diplomacy, the non-involvement of the association in settling bilateral conflicts, and respect and tolerance. On ASEAN, see also Tay and Estanislao (2001); Ganesan (1999, 2004); Hund (2002); Jones and Smith (2002); and Acharya (2003, 2004). Participants included Myanmar, Thailand, Indonesia, China, Japan, India, Australia, Singapore, Italy, Germany, France and Austria. The first meeting of the Bangkok Process eventually took place in December 2003. A second meeting planned for the end of April 2004 was postponed, however. These included the release of ASSK and NLD Vice-Chairman U Tin Oo and the re-opening of NLD offices. The development of such capabilities, Sukma suggested, should be achieved by the creation of relevant institutions, such as an ASEAN Maritime Surveillance Centre or an ASEAN Peacekeeping Centre. Also recommended was an ASEAN Centre for Combating Terrorism, not least because terrorism has constituted the principal trans-national threat. Indonesia’s draft Plan of Action focused on political development, the shaping and sharing of norms, conflict prevention, conflict resolution, post-conflict peace building and an implementation mechanism (ASEAN 2004a). In the event, by July both the US House of Representatives and the Senate passed with an overwhelming majority the Burmese Freedom and Democracy Act of 2003. This legislation required the US president to ban imports from Myanmar within 30 days of enactment until such a time that the president would determine and certify to Congress that Myanmar had achieved both ‘substantial and measurable progress’ to end violations of internationally recognized human rights and democratic government.

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–––– (2004a) 4th UN-ASEAN Conference: ‘Conflict Prevention, Conflict Resolution and Peace Building in Southeast Asia: ASEAN Security Community and the UN’, Jakarta, 24-25 February. Available at www.aseansec.org/un_jakarta.htm. –––– (2004b) Joint Communiqué of the 37th ASEAN Ministerial Meeting, Jakarta, 29-30 June. Available at www.aseansec.org. ASEM (2003) ASEM-5 Foreign Ministers Statement. Available at www.iias.nl/ asem/asem2003/ASEM_FMM5_Chair_Statement.pdf. BBC (British Broadcasting Corporation) (2003a) ‘UN Envoy Arrives in Burma’, BBC World News Edition, 6 June, online. Available at http://news.bbc.co.uk/2/hi/ asia-pacific/2967652.stm. –––– (2003b) ‘Burma Faces Expulsion’, BBC World News Edition, 20 July. Available at http://news.bbc.co.uk/2/hi-asia-pacific/3081557.stm. –––– (2003c) ‘ASEAN to Discuss Burma Crisis’, BBC World News Edition, 22 July. Available at http://news.bbc.co.uk/2/hi/asia-pacific/3085819.stm. –––– (2003d) ‘Burma In For Rough Ride at Summit’, BBC World News Edition, 6 October. Available at http://news.bbc.co.uk/2/hi/asia-pacific/3167720.stm Burmese Freedom and Democracy Act (2003). Available at www.burmafreedomcampaign.org/S1215.pdf. Bush, George W. (2003) ‘Burmese Freedom and Democracy Act of 2003 and Executive Order’, 28 July. Available at www.state.gov/p/eap/rls/rm/2003/ 22851.htm. Chongkittavorn, Kavi (2003) ‘Regional Perspective: Asean Is Making Virtue Out Of Necessity’, The Nation, 23 June. CNN (2003) ‘Myanmar Faces ASEAN Rebuke’, 16 June. Available at www.cnn. com/2003/WORLD/asiapcf/southeast/06/16/myanmar.asean/. Council of the European Union (2003) ‘Council Decision 2003/461/CFSP of 20 June implementing Common Position 2003/297/CFSP on Burma/Myanmar’, Official Journal of the European Union, L154/116, 21 June. Cranger, Lorne W. (2003) ‘Human Rights Problems in Burma’, testimony to Senate Committee on Foreign Relations, Washington DC, 18 June. Available at www. state.gov/g/drl/rls/spbr/21696.htm. Ganesan, Narayanah (1999) Bilateral Tensions in Post-Cold War ASEAN, Singapore: ISEAS. –––– (2004) ‘ASEAN: A Community Stalled?’, in Jim Rolfe (ed.) The Asia-Pacific: A Region in Transition, Honolulu: Asia-Pacific Center for Security Studies: 116–132. Ganjanakhundee, Supalak and Pinyorat, Rungrawee (2003) ‘Asean Plans Security Forum’, The Nation, 15 June. Haacke, Jürgen (1999) ‘The Concept of Flexible Engagement and the Practice of Enhanced Interaction: Intramural Challenges to the ‘ASEAN Way’, The Pacific Review, 12: 4: 581–611. –––– (2003a) ASEAN’s Diplomatic and Security Culture: Origins, Development and Prospects, London and New York: RoutledgeCurzon. –––– (2003b) ‘ASEAN’s Diplomatic and Security Culture: A Constructivist Assessment’, International Relations of the Asia-Pacific, 3: 1: 58–88. Hernandez, Carolina G. (2001), ‘Challenges for Society and Politics’, in Simon S. C. Tay, Jesus P. Estanislao and Hadi Soesastro (eds) Reinventing ASEAN, Singapore: ISEAS: 103–120. Hund, Markus (2002) ‘From ‘Neighbourhood Watch Group’ to Community?’, Australian Journal of International Affairs, 56: 1: 99–122.

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Jagan, Larry (2003) ‘Seeking a Way Out for Rangoon’, Bangkok Post, 9 August. The Jakarta Post (2003a) ‘ASEAN Security Community Not to Become Security Pact: Indonesian Minister’, 10 September. –––– (2003b) ‘ASEAN to Issue Bali Concord II’, 5 October. Jayakumar, S. (2000) ‘Opening Statement by Professor S. Jayakumar, 33rd ASEAN Ministerial Meeting, Bangkok, 24 July 2000’. Available at www.aseansec. org/3734.htm. Jayakumar, S. (2003a) Remarks to the media after his bilateral meeting with Chinese Foreign Minister Li Zhaoxing at the fringes of the ASEAN+3 meeting in Phnom Penh. Available at http://app.mfa.gov.sg/pr/read_script.asp? View, 2018. –––– (2003b) Remarks to the media at 5th Asia-Europe Meeting of Foreign Ministers, Bali, 24 July. Jones, David Martin and Smith, Michael L. R. (2002) ‘ASEAN’s Imitation Community’, Orbis (Winter): 93–109. Khin Maung Win (2004) ‘Myanmar Roadmap to Democracy: The Way Forward’. Available at www.mewashingtondc.com/Road_Map_Process_files/ Myanmar_Road_to_Democracy_The_Way_Forward.htm. Kraft, Herman Joseph S. (2000) ‘ASEAN and Intra-ASEAN Relations: Weathering the Storm?’, The Pacific Review, 13: 3: 453–472. Megawati Sukarnoputri (2003) Remarks by the President on the occasion of the 36th Anniversary of the Association of Southeast Asian Nations, 8 August. Available at www.aseansec.org/15017.htm. The New Light of Myanmar (2003) ‘Prime Minister General Khin Nyunt Explains Future Policies and Programmes of the State’, 31 August. Available at www. myanmar.gov.mm/NLM-2003/enim/Aug31-h4.html. New Straits Times (2003a) ‘PM: Not Constructive to Impose Sanctions on Myanmar’, 13 June. –––– (2003b) ‘Asean Wants Fast Resolution of Suu Kyi Issue to Avoid Setback’, 21 July. Powell, Colin (2003) ‘It’s Time to Turn the Tables on Burma’s Thugs’, Wall Street Journal, 12 June. Available online at www.state.gov/secretary/rm/2003/21466. htm. Ramcharan, Robin (2000) ‘ASEAN and Non-Interference: A principle Maintained’, Contemporary Southeast Asia, 22: 1: 60–88. Steinberg, David I. (2003) ‘Reconciliation – Progress in the Process?’, Southeast Asian Affairs: 171–188. The Straits Times (2003a) Editorial: ‘ASEAN Makes Its Move’, 21 June. –––– (2003b) ‘Mahathir Says Asean May Expel Myanmar’, 20 July. –––– (2003c) ‘Thaksin Declares War on Myanmar Drug Lords’, 21 August. –––– (2003d) ‘Bali Summit To Seek Closer Bonds’, 2 October. Sukma, Rizal (2003) ‘The Future of ASEAN: Towards a Security Community’, paper presented at seminar on ‘ASEAN Cooperation: Challenges and Prospects in the Current International Situation’, New York, 3 June. Sun Star Network Online (2003) ‘ASEAN’s Myanmar Policy May Face Review’, 18 June. Available at www.sunstar.com.ph/static/net/2003/06/18/asean.s. myanmar.policy.may.face.review.secretary.ople.(4.02.pm).html. Tay, Simon S. C. and Estanislao, Jesus P. (2001) ‘The Relevance of ASEAN: Crisis and Change’, in Simon S. C. Tay, Jesus P. Estanislao and Hadi Soesastro (eds) Reinventing ASEAN, Singapore: ISEAS: 3–24.


Taylor, Robert H. (2004) ‘Roadmap to Where?’, in Daljit Singh and Chin Kin Wah, Southeast Asian Affairs, Singapore: ISEAS. United Nations Human Rights Commission (2003) Interim report of the Special Rapporteur of the Commission on Human Rights on the situation of human rights in Myanmar, A/58/219, 5 August. Available at http://www.unhchr.ch/ Huridocda/Huridoca.nsf/TestFrame/eccddb907776a319c1256da900308f2c?Op endocument. Wanandi, Jusuf (2001) ‘ASEAN’s Past and the Challenges Ahead: Aspects of Politics and Security’, in Simon S. C. Tay, Jesus P. Estanislao and Hadi Soesastro (eds) Reinventing ASEAN, Singapore: ISEAS: 25–34.

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Part V

Post-cold war enlargement

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10 The challenge of asymmetry Origins, issues and implications of enlarging the European Union Christian Tuschhoff Introduction This study seeks to summarize findings of the existing academic and policymaking literature on the most recent round of enlarging the membership of the European Union to include mostly Central and Eastern Europe countries (CEEC). The treaty on accession was solemnly signed on 16 April 2003 and entered into force on 1 May 2004. On this day, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia became member states of the European Union, and their citizens enjoy rights and responsibilities as EU citizens. Furthermore, the European Union is currently negotiating accession with Bulgaria and Romania and will soon decide whether or not to start negotiations with Turkey. The current membership of 25 states may grow to 27 or 28 by the end of the decade (Beck 2003; Böttcher 2003; Grabbe 2002). The European Union has never engaged in such an ambitious enlargement of membership since its foundation as the European Coal and Steel Community (ECSC) in 1952. Previous rounds were both gradual and modest (see Table 10.1). Table 10.1 Overview of rounds of EU enlargement Year

1952

1973 1981/86 1995 2004

States

Belgium, Germany, France, Italy, Luxembourg, Netherlands Denmark, Ireland, UK Greece, Portugal, Spain Austria, Finland, Sweden Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia

Sources: Böttcher (2003); Tuschoff’s own data.

Countries added

Increase in % Population Area

GDP

3 3 3

32 22 7

31 48 37

29 15 7.5

10

20

23

4.4

176 Christian Tuschhoff The most recent accession differs from previous rounds in several ways. First, the number of countries joining the EU poses major challenges to the union, whose institutions and decision-making rules were designed to provide cohesion among six rather than 25 member states. Second, with the possible exception of Greece, Portugal and Spain, all previous candidate states were consolidated democracies, civil societies and established market economies with relatively high standards of living. Most of the most recent candidate countries were just released from the rule of dictatorships within the Soviet empire. They are still in the process of transition from planned economies to market economies; from dictatorships to democracies; and from group-identity based societies to nations based on civic principles and relations. These various and parallel processes of transformation are far from over and may still conflict with one another. Third, while new members have transformed and developed their economies at a remarkable speed, they have not yet achieved the productivity and wealth of the EU average. On average the candidates’ GDP per capita (adjusted for purchasing power parities – PPP) is about 40 per cent of the EU average (see Figure 10.1). However, their economic indicators are uneven, ranging from the most advanced – Cyprus and Slovenia – to the least developed – Bulgaria and Romania. Depending on varying projected future rates of economic growth, the new members (except for Cyprus and Slovenia) will need between 10 and 35 years to reach 75 per cent of the average EU GDP per capita. The accession adds to the diversity of productivity and structure of the economies of the EU member states. The growing difference

Index, EU-25 = 100 %

Pre-2004 member and candidate states (formerly blue)

200

200

EU-15 member states (formerly orange)

150

150

average group 1 average EU-25 100

100 average group 2

50

50

average group 3

0 an t EU s 15

12

ap

pl ic

BG RO

LT LV

PL

EE

C Z M T H U SK

P EL

SI

E

Y C

K U

I

S

F

D

B

N FI

L

A

N

L DK

L

0 IR

1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Figure 10.1 GDP per capita in PPP by EU member and candidate state, 2001 Source: European Statistical Office (Eurostat), calculations (European Commission) Directorate General Regional Policy, n.y. maps_graphs_c_en_pdf (author’s personal collection).

The challenge of asymmetry 177 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

between the rich and the poor members challenges the cohesion of the Union and undermines its goal of achieving similar living standards for all citizens, particularly because the EU has only a very limited capacity of financial equalization. In short, the current round of enlargement is characterized by a multidimensional asymmetry between old and new members. This study analyses this asymmetry by looking at the origins, the negotiations, the outcomes and the implications of the current membership accession. It argues that this asymmetry will challenge both the old and new member states in different ways and transform the very process of European integration.

The origins of enlargement: costs, benefits and democracy Why were the candidate countries interested in membership in the European Union and why were the EU and its member states interested in opening negotiations? These are not trivial questions. The answers will shed light on the general academic puzzle of why and under what conditions international organizations accept new members and share rights and responsibilities with them. The answers to these questions shed light on what the union is and how it relates to non-members and other regions. Accession countries’ interest in EU membership The interest of the candidate countries is not difficult to understand. After decades of subjection under Soviet dictatorship and military threat that stifled prospects of economic development and growth, these nations were interested in becoming democracies and market economies in order to catch up with their advanced industrialized neighbours in the West. Historically unable to defend themselves against the military threat from strong military powers, neutrality was not a viable option for them because it had made them pawns of the major European powers in the past. As a result, they first sought membership in NATO to provide for military protection against any potential re-emergence of the Soviet empire. The CEEC achieved these goals in a step-by-step process by becoming members of the North Atlantic Cooperation Council (NAC-C), the Partnership for Peace (PfP) and finally full members of NATO. However, although significant, this progress towards military security got the CEEC only half way. They also started transformation processes towards becoming democracies and market economies. While the transformation efforts certainly facilitated their chances for NATO membership, they proved insufficient for consolidating their young democracies and achieving global competitiveness. It became necessary to seek membership in the European Union to achieve these political and economic goals.

178 Christian Tuschhoff 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Consolidating democracy and market economy required these countries to entrench political and economic principles in their respective constitutions and to develop modern legal and administrative institutions. While these nations succeeded in building democratic constitutions on their own, further progress towards establishing modern legal systems and administrative capabilities were difficult to achieve because economic hardship weakened the standing of national governments and undermined their efforts to implement radical reforms. EU membership offered an easy solution to the difficult problem of economic and administrative modernization. Accepting EU laws and administrative requirements in one stroke was just so much easier than engaging in a long and difficult process of law making and administrative reform whose outcome was uncertain given the shaky nature of their governments (Mattli and Plümper 2002; Pridham 2002). In addition to these security and political considerations, the CEEC faced a number of economic incentives for acceding to the EU. After the collapse of the Soviet empire and the COMECON (Council for Mutual Economic Assistance), the CEEC were in dire economic straits. The loss of traditional markets added to the political turmoil. The European Union offered new opportunities for trade and trade-related growth. Signing the provisional trade agreements and the Europe Agreements with the EU and the subsequent liberalization of trade relations redirected the CEEC economies from their previous markets in the East to new ones in the West. These countries exported more than 52 per cent of their goods to the EU in 1993 and exports increased to 67 per cent in 2000. Imports from the EU-15 (the ‘older’ 15 member states) grew from about 50 per cent in 1993 to some 60 per cent in 2000 (Nello 2002). However, there are huge differences among individual countries. Hungary and the Czech Republic clearly used the new market opportunities. Hungary’s share of exports to the EU grew by over 10 per cent in the 1990s while its share of imports rose only by 5 per cent. Both figures grew dramatically for the Czech Republic, Slovakia and Latvia, demonstrating the impact of access to the EU market. For Poland, however, the share of imports and exports hardly changed. And for Lithuania the numbers even declined. Trade liberalization not only redirected the economic relations of the CEEC towards the European Union but also integrated them with the EU economy, making them more dependent. The balance of trade between the CEEC and the EU is mostly negative for the former. Only Hungary has managed to achieve a positive trade balance. The share of the trade deficit as a proportion of the CEEC’s respective GNPs (gross national products) is considerable and in many cases growing (Barysch 2003). There was a growing economic integration of the CEEC even before they achieved membership. Clearly, economic integration preceded the political process of membership accession (Nello 2002). Statistics on foreign direct investment (FDI) confirm this conclusion. The EU’s FDI in the CEEC grew from $3.5 billion in 1993 to almost $12 billion in 1999. Hungary became the first target of EU investment, while Poland, the


Czech Republic and Slovenia also attracted rapidly growing amounts. FDI had a significant impact on the CEEC economies, as the per capita figures show (Breuss 2001). Realizing their weaknesses and needs, the CEEC decided early on to seek membership in the EU. In a step-by-step process, economic and political integration progressed towards membership. Over 15 years, the CEEC succeeded in turning around their economic decline after the collapse of the Soviet empire and achieved remarkable economic growth rates, which were supported by the redirection of economic activities towards the EU. All countries managed to achieve an economic recovery between 1992 and 1995. With the exception of Bulgaria and Romania, average annual growth rates varied between 2 and almost 5 per cent (see Table 10.2). The welfare gains of the closer economic relationship with the European Union are undeniable. The fact that the CEEC have already benefited from the reorientation of their economic relations towards the West and the liberalization of trade with the EU raises the question whether they should expect even more welfare gains after joining the EU. At this point, economic studies can only speculate as to potential growth rates and welfare gains after 2004. However, it is possible to model the effects of EU membership in terms of GNP growth rates. Breuss, for example, has calculated the impact of the following EU membership effects on economic growth for the periods 2005–06 and 2008–10 respectively for selected countries and for Eastern Europe (Bulgaria, Czech Republic, Hungary, Kazakhstan, Poland, Russia, Slovenia and Ukraine) as a whole: trade; single market; FDI; migration to EU; and costs of membership. While Breuss had to use his own assumptions in developing his estimates – some of which (e.g. decisions on the ‘costs of enlargement’, i.e. contributions to the EU budget and allocation of EU funding to member states) have been overtaken by events – his figures still offer a reasonable conclusion about the benefits that the CEEC will derive Table 10.2 Changes in GDP for CEEC candidates during the 1990s

Poland Hungary Czech Rep. Slovakia Slovenia Estonia Latvia Lithuania Bulgaria Romania

Accumulated decline during transition crisis %

Year of resumed economic growth

Average annual growth until 2001 %

Level in 2001 compared to 1989 %

–17.8 –18.1 –18.1 –25.0 –20.9 –34.9 –51.7 –43.9 –26.7 –25.0

1992 1994 1993 1994 1993 1995 1994 1995 1994 1993

4.6 3.7 2.0 3.7 3.9 4.7 4.0 3.3 0.1 0.6

146 113 99 110 121 90 69 69 81 84

Source: Quaisser and Hall (2002).


from their membership in the EU. Economic interdependence will grow and membership-related welfare gains will increase over time. For most countries trade and FDI effects will be even more important than the effects of EU funding allocated to the member states (see Table 10.3). Based on the economic data, the entire process of seeking and achieving EU membership was and still is economically very beneficial to the candidate countries. Their interest in membership and the decisions to join the EU can be explained by rational cost-benefit calculations. While the transition was certainly economically and politically painful and difficult for the governments to achieve, no new member state will be worse off. Many economic benefits have already been achieved and the new members can look forward to a bright economic future of more growth and improved welfare. Old member states’ interest in EU enlargement Whereas the desire and interest of CEEC to join the EU can easily be explained by rational choice theories, i.e. cost-benefit calculations mainly based on economic data, explaining the approval of enlargement by the old members is much more complicated and cannot be based on rational choice theories only. The CEEC and their economies are simply too small to have a significant economic impact on the EU as a whole (Barysch 2003). In addition, geographic proximity, pre-existing economic relations, economic development and structures of CEEC economies will affect the current members quite differently. Several members will clearly gain from trade relations with CEEC and in other respects, while others will either not benefit or even suffer losses. In short, small overall gains and the uneven distribution of gains among member states makes approval of enlargement difficult to explain based on economic cost-benefit calculations. The following analysis shows the uneven distribution of enlargement costs and benefits. It seeks to explain the member states’ approval of enlargement by combining considerations of economic self-interest with support for the political principles on which the EU is based. Economic benefits and costs for current EU member states For the EU, trade with its East European neighbours has been economically insignificant even though it grew in the 1990s. Shares of total imports and exports grew from 2 per cent to 4 per cent and from 1.5 per cent to 5 per cent respectively. Also, the balance of trade has changed from a deficit to a surplus for most EU member states. However, the EU’s trade with the CEEC1 still makes only a very small contribution to its economy (see Table 10.4). This is in stark contrast to the importance of EU trade relations for the CEEC and highlights one dimension of the asymmetric character of their relationship.

3.95

0.94

0.94

Hungary

Czech Republic

Eastern Europe

Source: Breuss (2001).

1.95

Poland

1.23

2.84

4.20

2.47

0.53

1.02

1.58

1.23

0.62

0.54

1.25

2.07

2008– 10

2005– 06

2005– 06

2008– 10

Single market effects

Trade effects

0.08

0.14

0.32

0.21

2005– 06

0.19

0.37

0.81

0.45

2008– 10

FDI effects

0.01

–0.03

0.03

0.02

2005– 06

–0.04

–0.08

–0.09

–0.12

2008– 10

Migration to EU effects

Table 10.3 Estimated growth effects of EU membership on selected countries (as % of GDP growth)

0.61

1.1

1.45

1.87

2005– 06

1.08

1.98

2.23

3.15

2008– 10

Costs of membership effects

2.16

4.03

7.32

5.26

2005– 06

3.07

5.65

8.4

8.02

2008– 10

Total effects

1111 2111 3111 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

1999

2000


1.6

6.1

Austria

EU-15

0.9

Netherlands

0.8

1.6

Italy

UK

0.3

Ireland

1.5

1.0

France

Sweden

0.5

Spain

0.3

2.3

Greece

5.9

2.5

Germany

Finland

1.1

Denmark

Portugal

0.7

Belgium-Lux.

1.8

0.7

1.6

5.1

0.2

7.3

0.9

2.1

0.4

1.1

0.5

2.7

2.8

1.6

0.6

3.5

1.6

3.0

5.8

0.4

11.4

2.2

4.2

0.9

1.7

1.4

8.0

5.8

3.0

1.6

in % of total exports

4.6

1.9

4.3

7.6

0.9

13.3

2.6

5.3

1.1

2.7

2.2

8.2

7.8

3.8

2.5

4.8

4.8

2.1

4.3

7.4

1.3

13.5

2.7

5.7

1.4

3.0

2.5

8.1

3.6

2.6

1995

1.8

0.9

2.1

3.6

0.3

4.7

1.1

2.4

0.8

1.1

0.8

3.1

2.9

1.7

0.6

1.8

0.8

2.0

3.2

0.2

4.7

1.2

2.1

0.8

1.1

0.7

2.5

3.2

1.9

0.7

1.8

0.8

2.0

3.2

0.2

4.7

1.2

2.1

0.8

1.1

0.7

2.5

3.2

1.9

0.7

in % of total imports

1990

1988

1995

1988

1990

Imports from CEEC-10

Exports to CEEC-10

Table 10.4 EU trade with CEEC-10

3.1

1.4

3.0

3.5

0.5

6.7

2.1

3.5

0.5

1.4

1.2

3.5

6.2

3.0

1.2

1999

3.9

1.6

4.1

4.1

0.8

0.4

2.3

4.2

1.1

2.2

1.3

3.2

8.4

3.8

1.8

2000

1990

0.0

–0.1

–0.1

0.5

0.0

0.1

–0.1

–0.2

–0.2

0.0

–0.1

–0.4

0.0

–0.1

0.0

0.0

–0.1

–0.1

0.4

0.0

0.4

–0.1

0.0

–0.1

0.0

–0.1

–0.3

0.0

0.0

0.0

in % of GNP

1988

0.1

0.0

0.2

1.0

–0.1

0.9

0.1

0.2

0.4

0.1

0.0

0.0

0.1

0.0

0.3

1995

0.2

0.0

0.4

1.5

–0.1

1.0

0.2

0.3

0.3

0.1

0.1

0.0

0.1

0.1

0.5

1999

Trade balance with CEEC-10

0.2

0.0

0.1

1.3

–0.2

0.9

0.3

0.3

0.5

0.1

0.1

–0.3

0.2

0.0

0.6

2000

1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111


However, for some member states – particularly Austria, Germany, and Greece – trade with CEEC has not only increased over time; it is also clearly beneficial compared to other EU member states, even though these trade relations are far less important for these three countries than they are for the CEEC. These three member states have gained more from trade liberalization between the EU and CEEC than the other 12. This finding points to another dimension of asymmetry: the uneven distribution of gains resulting from EU enlargement. The data on foreign direct investment confirm this conclusion even though the list of countries that used new business opportunities is slightly different (see Table 10.5). In absolute terms Germany, the Netherlands, France and Belgium together with Luxembourg are the biggest investors in Central and Eastern Europe. In per capita figures, the Benelux countries lead the EU-15, followed by Austria, Sweden and Denmark. Germany and France invested a little more than the EU average. The United Kingdom, Spain and Greece did not develop any investment stake. The established trade relations and investment stakes in the CEEC economies also determine the prospects of EU member states increasing their enlargement gains. In addition to effects resulting from trade and foreign direct investment, Breuss has calculated single market effects, migration and costs of enlargement for 2005–06 and 2008–10. These costs of enlargement include contributions to the EU budget, mainly to fund agriculture, cohesion and regional development policies, as well as a changing distribution of EU funding allocated to recipient member states. His calculations are available for all EU member states but Luxembourg and Greece. Table 10.5 EU foreign direct investment in CEEC-10 1993

1995

1998

1999

In million $ Germany France Belgium-Lux. Netherlands Italy UK Ireland Denmark Greece Portugal Spain Finland Sweden Austria EU-15

1,430.5 269.1 251.0 362.4 379.8 64.5 – 51.7 – 2.0 7.8 19.8 78.8 514.9 3,432.3


2,661.4 1,223.9 216.5 1,285.4 106.5 148.3 – 218.8 – – 25.4 60.7 202.3 531.7 6,680.9

4,733.8 976.0 568.4 1,797.1 116.1 718.8 – 29.8 – 42.3 69.0 110.6 1,009.3 896.1 11,067.3

1999 per capita

3,086.0 1,967.0 1,536.6 2,156.3 615.7 385.1 – 387.0 – 135.3 173.7 72.0 721.1 698.9 11,934.7

37.6 33.6 144.2 136.4 10.7 6.5 – 72.8 – 13.6 4.4 14.0 81.4 86.4 31.8


Given the already high degree of trade liberalization, the EU cannot expect significant growth rates resulting from increased trade after 2004. Efficiency gains from factor movement such as migration are also negligible. Further exploitation of investment opportunities in the CEEC will slightly reduce prospects of growth in the member states while the costs of enlargement are expected to generate almost no growth effects. More important gains will result from the extension of the single market. The overall estimated growth effects of enlargement on the economy of the current EU are less than 0.5 per cent in 2005–06 and will decline to 0.3 per cent in 2008–10 (see Table 10.6). These estimates highlight the asymmetry of enlargement effects between the EU-15 and the CEEC because the latter are expected to grow by 2 to 3 per cent as a consequence of EU accession. Other authors (Baldwin et al. 1997; Brown et al. 1997; Keuschnigg et al. 1999; Keuschnigg and Kohler 1998; Keuschnigg and Kohler 1999) who based their estimates on slightly different assumptions than Breuss have predicted enlargementgenerated increases in GDP of between 0.1 and 1 per cent for the old EU members. However, even these modest enlargement-generated growth effects will be unevenly distributed among the EU-15. This will create enlargement winners and losers (Schimmelfennig 2001). Austria, Germany, Italy, Finland – all neighbouring countries of new members – and Ireland are expected to become short-term and long-term winners. Sweden, Denmark, Spain and Portugal may gain in the short term but over the long term the losses outweigh the benefits. In the Netherlands strong short-term gains cannot be sustained. Thus, it belongs to the group of neutral countries for which enlargement does not generate huge losses or gains (see Table 10.6). Other studies basically confirm Breuss’s findings (Quaisser and Hall 2002). The irony is that this predictably uneven distribution of costs and benefits among the EU-15 does not square with the pattern of public opinions. People in the winning countries are most suspicious of the consequences of enlargement, while people in the potentially losing countries are in favour. Greeks, Irish, Italians, Spaniards and Portuguese overwhelmingly support EU enlargement. The support is also considerable in Scandinavia, except Finland. In France, a majority of respondents in Eurobarometer surveys opposes enlargement while the British and Germans have been warming to the idea but remain sceptical. Within Germany, the East Germans are more sceptical than the West Germans. Austrians confirm that the closer people live to the border to Eastern Europe, the more sceptical they are of EU enlargement (Tuschhoff 2002). In short, the analysis and predictions of costs and benefits show that EU enlargement causes important asymmetries between countries. The first asymmetry is between the old and new member states. The CEEC can expect only to benefit from joining the EU in 2004. The old member states will gain only very modestly from CEEC accession. The second

0.02

0.07

0.07

0.07

0.04

0.07

Austria

Denmark

Finland

Ireland

Portugal

EU-13


0.04

Sweden

–0.06

Spain

0.06

0.01

UK

Belgium

0.09

Italy

0.08

0.02

France

Netherlands

0.15

Germany

0.05

0.12

0.20

0.08

0.07

0.14

0.06

0.09

0.17

–0.11

–0.06

0.16

0.12

0.01

0.40

0.68

0.64

0.52

0.35

0.59

0.65

0.31

0.72

0.48

0.22

0.46

0.21

0.05

0.33

–0.12

0.77

0.55

0.10

0.64

0.04

0.40

0.31

0.37

0.19

0.49

0.27

0.37

2008– 10

2005– 06

2005– 06

2008– 10

Single market effects

Trade effects

–0.07

–0.09

–0.14

–0.09

–0.07

–0.09

–0.06

–0.06

–0.08

–0.11

–0.01

–0.04

–0.10

–0.07

2005– 06

2008– 10

–0.16

–0.14

–0.40

–0.33

–0.21

–0.29

–0.16

–0.21

–0.21

–0.41

0.02

–0.09

–0.21

–0.12

FDI effects

0.05

0.05

0.05

0.05

0.02

0.13

0.07

0.03

0.05

0.04

0.03

0.02

0.03

0.06

2005– 06

0.06

–0.12

–0.05

0.02

–0.05

0.16

–0.02

–0.02

–0.08

0.05

0.05

–0.03

–0.03

0.23

2008– 10

Migration to EU effects

Table 10.6 Estimated growth effects of EU enlargement on selected member states

–0.03

–0.05

–0.15

–0.02

–0.01

0.00

0.00

–0.01

–0.06

–0.08

–0.02

–0.03

–0.05

–0.01

2005– 06

2008– 10

–0.03

0.05

–0.13

–0.02

–0.02

0.01

0.00

–0.01

0.04

–0.07

–0.02

–0.03

–0.04

–0.01

Costs of membership effects

0.42

0.63

0.47

0.53

0.34

0.83

0.69

0.33

0.71

0.28

0.24

0.50

0.10

0.63

2005– 06

0.26

–0.21

0.40

0.31

–0.11

0.66

–0.07

0.26

0.15

–0.18

0.18

0.50

0.11

0.48

2008– 10

Total effects

1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111


asymmetry concerns the distribution of the modest gains among old members. The southern members are likely to lose economically while the bordering countries, i.e. Austria, Italy and Germany, are likely to gain from enlargement. About half of the old member states will neither gain nor lose much by enlargement but may worry about their EU-related privileges and look sceptically at the reforms needed to make the EU institutionally fit to handle many more members. The fact that economic incentives for enlarging the EU are quite modest for the old member states and unevenly distributed among them have made forging a pro-accession consensus a difficult political task. Clearly, the main push had to come from the candidate countries and the likely winners among the EU members. But the weak overall incentive and the uneven distribution of benefits makes agreement to enlargement difficult to explain from the perspective of the cost-benefits analysis of rational choice theories. The enlargement-related benefits of the winners among the EU-15 were not big enough to allow for generous side payments necessary to win over the votes of accession losers and neutrals. In addition, the enlargement winners could not credibly threaten the losers with exclusion (Schimmelfennig 2002). For enlargement to gain the approval of all EU member governments, without which it could not occur, other mechanisms than bargaining over the distribution of material gains and losses had to be employed (Schimmelfennig 2001).2 The power of ideas and rhetorical action If the material interests and preferences of member governments cannot explain the EU’s decisions to move towards enlargement, other factors must be considered. Most importantly, both the CEEC and the expected enlargement winners among the EU member states could point to norms and values of the EU as a community with a common identity and legitimacy. The basic argument had to be that enlargement may not be a beneficial material option but it nonetheless was definitely ‘the right thing to do’.3 Proponents of enlargement, i.e. the CEEC and the winners among the EU member states, had to appeal to the founding principles and legitimizing ideas of the EU in order to pursue their self-interest. Enlargement became a matter of persuading the opponents among the current member states by ‘rhetorical action’ (Schimmelfennig 1997). Selfish goals had to be backed up rhetorically by appeals to the ideational foundation of a community. The opponents’ position was labelled as incongruous to the very identity of the community and its legitimacy undermined. Most importantly, enlargement proponents put shame on the opponents. They argued that the opponents’ selfish interests were contradictory to the very identity of the community and that their preferences violated the basic norms and values of the entire community. The founding values and norms of the European Union were anti-fascism, anti-communism and international peace based upon a pan-European


community of liberal democracies. Furthermore, members must respect and implement the rule of law and human rights. Also, all member states and potential applicants must conform to the principles of an open market economy with free competition. Finally, new members must accept both the entire acquis communautaire, i.e. the entire body of EU law, and the acquis politique, i.e. the entire body of political decisions mostly relating to the common foreign and security policy (Schimmelfennig 2001). How did the candidates succeed in making accession an issue of identity and legitimacy of the EU? First, they argued that they have always shared these basic principles but were forced to postpone them by Communist dictatorships and the reality of the European division during the cold war. Nevertheless, they claimed a common cultural heritage, being part of Europe’s community and civilization. If the EU postponed or even denied accession to the CEEC, it risked that these countries would turn away from liberal democracy and economic modernization. Second, proponents pointed to the obvious mismatch between the political declarations of the EU and its actual behaviour. Celebrating pan-Europeanism in the founding documents of the EU and declarations welcoming the end of the division of Europe were hard to reconcile with protectionist measures against trade liberalization or stalling tactics regarding the CEEC membership applications. Finally, the proponents demanded that the EU should base its decision on enlargement on political principles and long-term collective interests such as peace, stability and welfare rather than short term economic cost-benefit calculations (Fierke and Wiener 1999; Schimmelfennig 2001). This offensive by the CEEC and the likely enlargement winners among the member states put the opponents in a defensive position. Unable to attack the legitimacy of the CEEC applications they resorted to competing values when they argued that enlargement might jeopardize the achieved level of European integration. Opponents portrayed widening the membership of the EU as at odds with its deepening (Schimmelfennig 2001). However, this argument was eventually turned against them when proponents explained that widening would surely require a further deepening of integration and institutional change to maintain efficiency. If enlargement opponents were truly interested in deepening European integration, widening would provide additional outside pressure to move forward. In the end opponents proved to be unable to prevent the enlargement process from going forward based on common norms and values. In 1993, the EU decided to consider the CEEC’s applications and negotiate the terms of accession.4 The opponents had to resort to detailed negotiations on the terms of the accession and to guard against any negative effect on their (special) stakes in the EU bargain. These efforts resulted in the refinement of the enlargement criteria agreed at the Copenhagen summit in 1993 and led the CEEC to complain that the EU made accession a moving target (Brinar and Svetlicic 1999; Stawarska 1999).


Conflicts during the negotiations In light of the aforementioned asymmetries the process of negotiating and preliminarily closing the chapters proved to be painful for the candidates. Moreover, there was a lack of coordination among the applicant governments due to different domestic environments. Some countries, most importantly Hungary, pursued a fast track strategy that had been recommended by Spain. Basically, the government wished to join the EU as soon as possible and simply asked what conditions it must meet. The details of derogations were far less important to Hungary than to other candidates because it calculated that becoming a member would be most beneficial and far more important than transition rules. Arrangements pertaining to its EU membership could be changed more effectively once membership had been achieved and Hungary had become an equal partner and received a voice and votes in EU decision making. Poland pursued the opposite strategy of hard bargaining until the very end of the negotiation process. As it is a much more populous and politically diverse country, ensuring support from all partners in the governing coalition, key political parties and the general public became a key concern of the government. Thus, it sought to keep asymmetries of unequal treatment to a minimum, develop a stake in EU membership for as many constituencies as possible, and create the appearance that a better deal was just not possible. Hence, playing two-level games (Evans et al. 1993; Putnam 1988) was more important to Poland than to Hungary. The other candidates pursued a strategy between these two extremes. Two issues – agricultural policy and regional policy – proved to be the most difficult to negotiate because they represented key problems of financial redistribution, i.e. the cost of enlargement. While a full account of these negotiations cannot be provided here5 the main outcomes of negotiations as part of the discussion about asymmetries of the enlargement process are presented. (For a full account of the negotiations, see Baun 2000, 2002; Gower and Redmond 2000; Grabbe 2002; Mayhew 2000; and Sedelmeier and Wallace 2000.) Agriculture Common Agricultural Policy (CAP) was probably the thorniest issue in the enlargement negotiations. It is the biggest item in the EU budget and thus encompasses significant stakes for farmers as constituents and for certain member states. Access, allocation and reallocation of agricultural spending became an almost intractable problem. The structural reason behind the difficulty of reforming the CAP has always been that from its very beginning the CAP sought to maintain national structures of the various agricultural sectors in the member states but to ‘Europeanize’ policy making in an effort to shield the sector from the competitive pressures


of other sectors and policy fields such as budget making or consumer protection (Rieger 1996, 2000). Reforms have been tried many times, but they succeeded only in repackaging the original bargain rather than fundamentally changing the system. However, external pressures such as negotiating international trade agreements and enlargement of membership generated incentives for some adjustments to cap the increased level of EU spending on the CAP. The net redistribution effects of CAP spending are quite significant and results in another asymmetry of costs and benefits among the present member states (see Figure 10.2). One of the key challenges of the enlargement was not only that another asymmetry between new and old member states would be added but also that the existing one between current net payers and net recipients would be changed. Some basic options to solve this problem were available (Ardy 2000; Swinnen 2002). The first would have kept CAP largely unchanged and simply extended it to the new member states. The old net recipients and the candidates would have benefited from this option whereas the net payers would have paid the bill. This bill would have been considerably larger because the agricultural sector in the new member states is significantly bigger than in the present member states. The second option was to maintain the current spending level, but redistribute CAP funding to include the new members. The net payers favoured this option because their level of spending would not have increased, but the present net recipients found it unacceptable. The third and final option was to develop two different CAP funding levels for new and old member states. The net –4,444

Germany –1,850

Netherlands –965

Belgium –476

Sweden

–417

Italy

–147

UK

–106

Luxembourg

–71

Austria

Denmark

169

Finland

172

Portugal

272

Ireland

939

France

1,532

Greece

2,157

Spain

–5,000

–4,000

–3,000

–2,000

–1,000

3,237

0

1,000

2,000

3,000

Figure 10.2 Net redistribution effects of CAP by member states in 2001 (in € millions) Source: FAZ.NET (2001)

4,000


recipients and the net payers found this option acceptable whereas the candidate countries perceived it as a flagrant violation of the equality principle. In the end a compromise emerged that mainly combined elements of options two and three (see Table 10.7). This allocation of funding was a major disappointment for the candidate states because they expected more generous direct payments, i.e. income subsidies to farmers. However, the direct payments are to be ‘phased in’ starting at 25 per cent of the support level of old member states. The support will be increased by 5 per cent per year until 2006 and then 10 per cent per year. This means that direct payments for farmers in old and new member states will reach equal levels only in 2013. The deal has been sweetened for the new members because they are allowed to top EU direct payments using their own national resources and – within certain limits – EU funding allocated to rural development until 2006. After 2006 these so-called ‘top-up’ payments must be based on national budget resources. While this EU concession adds some flexibility to CEEC agricultural spending and can lead to income support levels of some 50 per cent of farmers in the old member states until 2006, it will delay the necessary restructuring of the agricultural sector in the new member states. The EU allocated comparatively more money to rural development in the new member states than to the old ones because this budget item can be used for agricultural change. Clearly this is the first step towards a necessary reform of the entire agricultural policy. The second step has been essentially to freeze spending on direct payments and market support for both new and old member states in real terms at the 2006 levels. The increase in nominal terms is also limited to 1 per cent per year. Thus the total agricultural spending is expected to decrease from about €41.8 billion in 2007 to €38.2 billion in 2013 in 1999 prices (Brückner and Weise 2002; Weise 2002). This is good news for the member states that pay more into the EU agricultural budget than they receive (net payers). However, the smaller amount of funding will have to be shared equally among all farmers in the enlarged EU. It means that the current net recipients in the EU-15 will face not only a decrease in their level of support but also cuts because of the reallocation of agricultural spending from the old to the new member states. The current net Table 10.7 Budget allocation for agricultural expenditure in new member states 2004–06 (in € bn) 2004

2005

2006

Total 2004–06

Direct payments Market support Rural development

0.000 0.327 1.570

1.211 0.822 1.715

1.464 0.858 1.825

2.675 2.007 5.110

Total

1.897

3.748

4.147

9.792

Source: Council of the European Union (2002).


recipients will face the choice of either partially re-nationalizing agricultural subsidies – thus following the likely path of the new member states – or further restructuring their agricultural industries in such a way that they can live with lower subsidies. The agreement on CAP reform of June 2003 has not solved this fundamental problem. While it reiterated the previous agreement that CAP spending will be capped and established incentives for reforms, it failed to guide member states towards one or the other option (European Commission 2003b). For our discussion this means that the asymmetry of treatment between new and old member states will continue until 2013 but gradually decline. The asymmetry between net recipients and net payers of the CAP budget will continue even though it will be capped and gradually reduced. However, enlargement has set an important precedent towards both re-nationalization of agricultural funding and change in the agricultural sector. Regional policy and structural funds Economic and social cohesion is one of the major goals of the EU. It has set up specific instruments to achieve economic convergence among member states and, even more important, among regions. The main funding instruments are the structural fund and the cohesion funds. The main beneficiaries of these instruments have been the poorest member states – Spain, Portugal and Greece. However, the more the funding instruments moved towards a redistribution facility of the EU budget, the more other member states and particularly eligible regions generated a stake in regional policy, too. Enlargement poses several new challenges to the existing arrangements because it is likely to shake up existing asymmetries and generate new ones. Except for Spain, Portugal, and Greece, all old member states belong to a first group with a per capita GDP above the average of an enlarged European Union (see Figure 10.1). The second group includes three present member states – Spain, Portugal and Greece – plus Cyprus and Slovenia. The group’s per capita GDP ranges from 71 per cent of the EU-25 (the 25 member states of the EU since the accession of the 10 new member states in May 2004) average in Greece to 92 per cent in Spain. The final group consists of the poorest member states, whose average GDP per capita is about 40 per cent of the EU-25 average. One so-called statistical effect of enlargement will be that the average GDP per capita for the EU-15 will be lowered (see the far right column in Figure 10.1). This means that several regions will lose their funding eligibility because their average GDP per capita moves above the threshold of 75 per cent of the EU average even though their situation has not changed and they still have to catch up with other EU regions.


There are also very significant regional differences within member states measured by GDP per capita in purchasing power parities (PPP). The range between rich and poor regions is quite striking in the UK, Belgium and Germany where rich regions are well above the EU-25 average, whereas the poor regions rank significantly below the EU-25 average. This difference between rich and poor regions is far less pronounced in the new member states, with the exception of the Czech Republic and Slovakia. Most regions in new member states are equally poor. Hence, the real challenge for any EU convergence policy must be to narrow the gaps between member states and among rich and poor regions within several member states. The gap between the rich and the poor is clearly widening as a result of enlargement. The distance between the 10 per cent of the population living in the most prosperous regions and the 10 per cent living in the least prosperous ones has more than doubled with EU enlargement. This exacerbates the previous asymmetry of prosperity. Moreover, some 25 per cent of the total population in EU-25 live in regions below the 75 per cent of the average per capita EU GDP. This percentage increased from the previous 18 per cent in the EU-15. Sixty per cent of these poor people will live in the new member states whereas 40 per cent live in the old ones. The gravity of the EU income asymmetry shifts geographically from the south to the east (European Commission 2003a) presenting a long-term challenge for regional policy. The EU plans to address these old and new income asymmetries in a number of ways, but at first it will concentrate its funding instruments for regional policy on the poorest regions, i.e. the new member states. After accession, by far the most important budget transfer to the new member states concerns structural and regional policy (see Table 10.8). The sum of almost €22 billion is more than double the €9.8 billion allocated to agricultural expenditures. This clearly demonstrates the interest of the EU in the development of its new members. For this reason the Cohesion Fund has been given more relative weight in regional policy than the Structural Fund when compared with the situation in the old member states. The Cohesion Fund does not require matching funds from national or regional governments and can be better absorbed than Structural Fund support. Also, the EU promotes the building of institutional capacity in the new member states with its regional funding instruments (European Commission 2003a). However, on a per capita basis the new member states will still receive far less than their neighbours in the old recipient member states. The new members will receive an average of €117 per person per year whereas the amount for the old member states is an average of €217. The official justification for this asymmetry between new and old member states is that the candidates are institutionally and financially incapable of absorbing more regional aid, which requires a lot of administrative capacity and considerable matching funds from regional or national


Table 10.8 Funding for structural and regional policy in new member states (in € bn) 2004

2005

2006

Total 2004–06

Structural Fund Cohesion Fund

3.478 2.617

4.788 2.152

5.990 2.822

14.256 7.591

Total

6.095

6.940

8.812

21.847

Source: Council of the European Union (2002)

governments. The old member states negatively affected by the statistical impact of enlargement will be compensated for their loss of eligibility at least until 2013. This ensures that the existing and new asymmetries are likely to continue for the foreseeable future.

Conclusion: implications of asymmetry How do all these asymmetries generated by EU enlargement affect the European Union and the world in general? Many authors have claimed that we are approaching a world of globalization after the end of the cold war and even the end of history. A globalized world is characterized by both increased competition and a fundamental convergence of economies around market economies and political systems around democracy. However, despite increased competitive pressures, we observe forms of regional integration designed to maintain specific types of democracy and special traits of market economies. These special responses to global competition build on a historical legacy of regional integration and are also designed to protect states and regions against fundamental change in favour of incremental adjustment. North America based its economic response on the principle of free trade and a market approach with limited political institution-building; Asia based its sociological approach on economic and political networks; and Europe pursued its regulative approach of integration based on legal and political institution-building (Hollingsworth 1997; Katzenstein 1976; Katzenstein 1993; Katzenstein 1997; Katzenstein and Shiraishi 1997; Zysman 1983). EU enlargement is significant because it offered a choice between fundamentally changing and reaffirming the path of the European model of regional integration. However, Europe never perceived nor debated this fundamental choice; it simply drove further down the road of institutional adjustment and regulative policies. Enlargement confirmed rather than fundamentally challenged the European model of regional integration. Neither the old nor the new member states considered any alternatives, but rather moved with ease and speed, without fundamental doubt. Thus, EU enlargement is a fundamental blow to globalization. The future world will not be one of globalization but of regions in competition.


Has enlargement strengthened or weakened the European Union’s capability to compete with North America and Asia? My analysis of enlargement related asymmetries suggests both. The enlarged European Union will be the largest single market among the advanced industrialized economies. As such it is a market too big to be ignored or bypassed. Its development has implications for other regions and states. Because of the sheer size of its market the enlarged European Union will become less dependent on developments in other economies as its productivity and competitiveness grows. EU enlargement certainly offers new opportunities for growth, mainly but not exclusively in the new member states. Economic asymmetries while challenging the EU’s cohesion also strengthen competition among member states. This competition has the potential to stimulate growth throughout the Union. The exploitation of these economic opportunities mainly depends on the extent to which businesses take advantage of the enlarged market and enhance their networks of production. In addition, the economic success or failure of enlargement will depend on the extent to which the new member states succeed in building civic societies conducive to economic growth. In their seminal work Robert Putnam and his collaborators showed that the performance of democratic governments and market economies significantly depends on social capital. Where social capital is available in abundant supply, democracy flourishes and the economy grows. Where social capital is scarce governments perform poorly and the economy stagnates (Putnam 1993). In the latter case subsidies to poor regions cannot compensate for slow growth and are unlikely to lead to economic convergence. Thus, the economic success or failure of enlargement will depend on the transition of the societies in the new member states. Whereas the economic outlook of the enlarged European Union is bright, the challenges of the political asymmetries are more difficult to calculate. Can the enlarged EU move towards its goal of an ‘ever closer union’ or will the increased diversity become unmanageable? Will the EU succeed in its deepening efforts and in enhancing its effectiveness as a political (and global) actor or move towards an ‘ever looser union’? Enlargement will certainly add to the already substantial diversity of interest among member states. Old and new asymmetries will flourish. Finding compromise solutions among more governments and putting together package deals will be more difficult in the future. Whether the reformed EU institutions will add to the effectiveness of the policy-making process is an open and unpredictable question. However, my analysis also suggests that enlargement was not only a process that followed the theory of rational choice. Rather, it reinforced common values as the social and political foundation of a European community of citizens. Thus, the political success or failure of an enlarged EU will depend on whether the top-down


approach of regional integration can be supplemented by a bottom-up approach. Citizens must become more attached to common values and reiterate the cultural foundation of the community by engaging in a repetitive transnational process of arguing. If they engage in building such a community of values, the aforementioned political and economic asymmetries will become irrelevant. Only then will the union succeed in forming a sustainable community based on political legitimacy. The regulative model of the EU ensures that citizens are endowed with equal rights and responsibilities. Yet, the community constitutes itself only to the extent to which citizens use these rights and are committed to their responsibilities. This is the fundamental and unpredictable challenge of future European integration.

Notes 1 2

3 4

5

CEEC-10 refers to Hungary, Czech Republic, Poland, Bulgaria, Romania, Slovakia, Slovenia, Estonia, Latvia and Lithuania. Bargaining refers to a strategic interaction among states that pursue goals based on self-interest. In bargaining states use the credible threats of exclusion and/or side payments as main sources of leverage. The outcome of the bargaining process reflects the distribution of power among states. By contrast, arguing refers to a strategic interaction among states that pursue goals based on common ideas. They use shame and the credible threat of destroying the legitimacy of common values as the main instruments of leverage. The outcome of the arguing process reflects the strength of common norms and values as well as the persuasiveness of arguments and commitment to common ideas. See Fürst 2001; Risse 2000; Schimmelfennig 1997; Schimmelfennig and Sedelmeier 2002. March and Olsen 1989 distinguish between the ‘logic of consequentiality’ and the ‘logic of appropriateness’. Schimmelfennig (2002) further tested the ‘liberal community hypothesis’ – i.e. the idea that the more a state adheres to the norms and values of liberal communities, the more likely it applies for entry and will be admitted – by comparatively analysing enlargement processes of the EU, NATO and the Council of Europe. He found that neither belonging to the same civilization (Huntington 1996) nor material interest but only liberal democracy can explain applications and admission in liberal international organizations. Fuchs and Klingemann (2002) indirectly confirm this finding with their comparative analysis of countries’ identities and democratic credentials. They conclude that the CEEC have much in common with the West Europeans, but other groups show striking differences, most importantly the Orthodox South-Eastern European countries and East Europeans such as Russia, Ukraine, Belarus and Moldova. The EU has admitted those neighbouring countries that shared its basic identity but is reluctant to move on applications from other countries whose identities will not match the EU. In addition to agriculture and regional policies, a number of special issues proved to be difficult to negotiate but will not be treated here. They included migration and the free movement of labour, the reform of EU institutions and special issues such as the division of Cyprus, the nuclear power plant in Temelin (Czech Republic) and the Benes decrees.


References Ardy, Brian (2000) ‘Agriculture and Enlargement’, in J. Gower and J. Redmond (eds) Enlarging the European Union. The Way Forward, Brookfield, VT: Ashgate. Baldwin, R., François, J. and Portes, R. (1997) ‘The Costs and Benefits of Eastern Enlargement: The Impact on the EU and Central Europe’, Economic Policy, 24: 127–176. Barysch, Katinka (2003) Does Enlargement Matter for the EU Economy?, London: Centre for European Reform. Baun, Michael J. (2000) A Wider Europe. The Process and Politics of European Union Enlargement, Lanham, MD: Rowman & Littlefield. –––– (2002) EU Enlargement and the Acquis Communautaire: The Consequences for Transatlantic Relations, Washington DC: American Institute for Contemporary German Studies (AICGS). Beck, Roland (2003) Negotiations Concluded – Challenges Remain, Frankfurt a.M.: Deutsche Bank Research. Böttcher, Barbara (2003) Mission Accomplished – Accession on May 1, 2004, Frankfurt a.M.: Deutsche Bank Research. Breuss, Fritz (2001) ‘Makroöknomomische Auswirkungen der EU-Erweiterung auf alte und neue Mitglieder’, WIFO Monatsberichte, 11. Brinar, I. and Svetlicic, M. (1999) ‘Enlargement of the European Union. The Case of Slovenia’, Journal of European Public Policy, 6: 5: 802–821. Brown, D., Deardorff, A., Djankov, S. and Stern R. (1997) ‘An Economic Assessment of the Integration of Czechoslovakia, Hungary, and Poland into the European Union’, in S. W. Black (ed.) Europe’s Economy Looks East. Implications for Germany and the European Union, Cambridge: Cambridge University Press. Brückner, Herbert and Weise, Christian (2002) ‘The EU on the Eve of Eastern Enlargement. The European Convention Should Seize the Opportunity to Introduce Reforms’, Economic Bulletin, 12. Council of the European Union (2002). Presidency Conclusions, Copenhagen European Council, 12 and 13 December (SN 400/2). European Commission (2003a) Communication from the Commission. Second Progress Report on Economic and Social Cohesion, Brussels: European Commission. –––– (2003b) EU Fundamentally Reforms Its Farm Policy to Accomplish Sustainable Farming in Europe, Luxembourg: European Commission. Evans, Peter E., Jacobsen, Harold K. and Putnam, Robert D. (eds) (1993) DoubleEdged Diplomacy. International Bargaining and Domestic Politics, Berkeley, CA: University of California Press. FAZ.NET (2001). Available at www.faz.net 2001, or ‘Frankfurter Allgemeine Zeitung online (FAZ.NET) 2001’. Fierke, K.M. and Wiener, Antje (1999) ‘Constructing Institutional Interests: EU and NATO Enlargement’, Journal of European Public Policy, 6: 5: 721–724. Fuchs, Dieter and Klingemann, Hans-Dieter (2002) ‘Eastward Enlargement of the European Union and the Identity of Europe’, West European Politics, 25: 2: 19–55. Fürst, Philipp (2001) ‘Eine konstruktivistische Wende in der international Verhandlungstheorie? Verhandeln und Argumentieren in internationalen Verhandlungen’. Diplomarbeit, Fachbereich Politik- und Sozialwissenschaften, Freie Universität Berlin, Berlin.


Gower, Jackie, and Redmond, John (eds) (2000) Enlarging the European Union. The Way Forward, Brookfield, VT: Ashgate. Grabbe, Heather (2002) The Copenhagen Deal for Enlargement, London: Centre for European Reform. Hollingsworth, J. Rogers (1997) ‘Continuities and Changes in Social Systems of Production: The Cases of Japan, Germany, and the United States’, in J. R. Hollingsworth and R. Boyer (eds) Contemporary Capitalism. The Embeddedness of Institutions, Cambridge, New York: Cambridge University Press. Huntington, Samuel P. (1996) The Clash of Civilizations and the Remaking of World Order, New York: Simon & Schuster. Katzenstein, Peter J. (1976) ‘International Relations and Domestic Structures. Foreign Economic Policies of Advanced Industrial States’, International Organization, 30: 1: 1–45. –––– (1993) ‘Regions in Competition: Comparative Advantages of America, Europe, and Asia’, in H. Haftendorn and C. Tuschhoff (eds) America and Europe in an Era of Change, Boulder, CO: Westview Press. –––– (ed.) (1997) Tamed Power: Germany in Europe, Ithaca, NY: Cornell University Press. –––– and Shiraishi, Takashi (1997) Network power: Japan and Asia, Ithaca, NY: Cornell University Press. Keuschnigg, Christian and Kohler, Wilhelm (1998) Eastern Enlargement to the EU. How much is it worth for Austria?, Vol. 1786, Discussion Paper, London: Centre for Economic Policy Research (CEPR). –––– and Kohler, Wilhelm (1999) Eastern Enlargement of the EU: Economic Costs and Benefits for the Present Member States? The Case of Austria, Parts I and II, Brussels: European Commission. ––––, Keuschnigg, Mirela and Kohler, Wilhelm (1999) Eastern Enlargement to the EU: Economic Costs and Benefits for the EU Present Member States? Germany, Brussels: European Commission. March, James G. and Olsen, Johan P. (1989) Rediscovering Institutions. The Organizational Basis of Politics, New York: Free Press; Maxwell Macmillan, Canada; Maxwell Macmillan International. Mattli, Walter and Plümper, Thomas (2002) ‘The Demand-Side Politics of EU Enlargement: Democracy and the Application for EU Membership’, Journal of European Public Policy, 9: 4: 550–574. Mayhew, Alan (2000) Enlargement of the European Union. An Analysis of the Negotiations with the Central and Eastern European Candidate Countries, Falmer: Sussex European Institute. Nello, Susan Senior (2002) ‘Preparing for Enlargement in the European Union. The Tensions between Economic and Political Integration’, International Political Science Review, 23: 3: 291–317. Pridham, Geoffrey (2002) ‘EU Enlargement and Consolidating Democracy in PostCommunist States – Formality and Reality’, Journal of Common Market Studies, 40: 3: 953–973. Putnam, Robert D. (1988) ‘Diplomacy and Domestic Politics: The Logic of TwoLevel Games’, International Organization, 42: 3: 427–460. –––– (1993) Making Democracy Work. Civic Traditions in Modern Italy, Princeton, NJ: Princeton University Press.


Quaisser, Wolfgang and Hall, John (2002) Toward Agenda 2007: Preparing the EU for Eastern Enlargement. Munich: Osteuropa-Institut München. Rieger, Elmar (1996) ‘Agrarpolitik: Integration durch Gemeinschaftspolitik?’, in M. Jachtenfuchs and B. Kohler-Koch (eds) Europäische Integration, Opladen: Leske & Budrich. –––– (2000) ‘The Common Agricultural Policy’, in H. Wallace and W. Wallace (eds) Policy-Making in the European Union, Oxford: Oxford University Press. Risse, Thomas (2000) ‘ “Let’s argue!”: Communicative Action in World Politics’, International Organization, 54: 1: 1–39. Schimmelfennig, Frank (1997) ‘Rhetorisches Handeln in der internationalen Politik’, Zeitschrift für Internationale Beziehungen, 4: 2: 219–254. –––– (2001) ‘The Community Trap. Liberal Norms, Rhetorical Action, and Eastern Enlargement of the European Union’, International Organization, 55: 1: 47–80. –––– (2002) ‘Liberal Community and Enlargement: An Event History Analysis’, Journal of European Public Policy, 9: 4: 598–626. –––– and Sedelmeier, Ulrich (2002) ‘Theorizing EU Enlargement: Research Focus, Hypothesis, and the State of the Research’. Journal of European Public Policy, 9: 4: 500–528. Sedelmeier, Ulrich and Wallace, Helen (2000) ‘Eastern Enlargement’, in H. Wallace and W. Wallace (eds) Policy-Making in the European Union, Oxford: Oxford University Press. Stawarska, R. (1999) ‘EU Enlargement from the Polish Perspective’, Journal of European Public Policy, 6: 5: 822–838. Swinnen, Johan F. M. (2002) Budgetary Implications of Enlargement: Agriculture. Brussels: Centre for European Policy Studies. Tuschhoff, Christian (2002) The Politics of Finalizing EU Enlargement: Towards an Ever Looser Union?, edited by the American Institute for Contemporary German Studies (AICGS), Vol. 19, Policy Papers, Washington, DC: American Institute for Contemporary German Studies. Weise, Christian (2002) How to Finance Eastern Enlargement, Berlin: DIW (German Institute for Economic Research). Zysman, John (1983) Governments, Markets, and Growth: Financial Systems and the Politics of Industrial Change, Ithaca, NY: Cornell University Press.

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11 The Indo-Chinese enlargement of ASEAN Enhancing or undermining regional economic integration? Helen E. S. Nesadurai Introduction The formal enlargement of the Association of Southeast Asian Nations (ASEAN) to ten members, which achieved the vision of its founding fathers of ‘One Southeast Asia’, took place in three phases, beginning with Vietnam’s entry into the Association in 1995, followed by Myanmar and Laos in July 1997, and finally Cambodia’s (delayed) entry in April 1999.1 While a number of commentators saw ASEAN enlargement as a positive development for the association that also overcame the historical cold war divide in Southeast Asia, others were less sanguine about enlargement (Gates and Mya Than 2001: 2–3). In particular, there were concerns that the association would have to confront new political, economic and strategic challenges as a result of additional members with different political and ideological outlooks (Acharya 2001: 103). Both extra-regional as well as intra-regional interactions were expected to become more complex as a result, a consequence of enlargement that many believed would hamper the cohesiveness of ASEAN and undermine the future of regional cooperation. It is true that the Indo-Chinese enlargement of ASEAN increases the diversity of external threat perceptions already extant in ASEAN, and consequently also the range of responses of member states to extra-regional actors and on crucial issues. Nevertheless, the formal entry of the IndoChinese states – Cambodia, Laos and Vietnam (CLV states) – has not fundamentally altered the nature of relationships between ASEAN and external actors, unlike the inclusion of Myanmar within the ASEAN fold. The Indo-Chinese enlargement does not also fundamentally alter the internal workings of ASEAN, particularly with regard to adherence to the time-honoured norm of non-interference. In this, there is clearly a convergence between the CLV states and the original members, which, with the possible exception of Thailand and the Philippines, also remain hesitant about taking ASEAN along a path that departs substantially from the non-interference norm. Instead, it is on the economic front that the Indo-Chinese enlargement of ASEAN is expected to have the greatest impact. First, the Indo-Chinese states are transition economies, with Vietnam and Laos engaged in shifting

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from a collectivist economic system to a more market-based economy and Cambodia undergoing economic rebuilding as well as political reform and state building. Second, and related to the previous point, the Indo-Chinese states differ from the original ASEAN states in terms of their underdevelopment. Both these features put the CLV states at a very different and difficult starting point with regard to their participation in ASEAN economic regionalism.2 This raises the question of whether the Indo-Chinese enlargement of ASEAN has undermined the prospects for regional economic integration, or whether it has helped or has the potential to help consolidate and advance it. This is an important question for ASEAN given the centrality of regional economic cooperation since 1992 when the ASEAN Free Trade Area (AFTA) project was initiated. ASEAN has also decided to advance economic cooperation beyond AFTA towards deeper regional economic integration through the formation of an ASEAN Economic Community (AEC). The ASEAN members view economic integration as a critical instrument through which to respond to the competitive challenges of economic globalization more generally and to those posed by the economic rise of China more specifically. The present analysis reveals that the Indo-Chinese enlargement of ASEAN has the potential to enhance ASEAN economic integration by helping to extend the dimensions of the ASEAN regional market and the range of internal industrial complementarities it presents to investors. These potential gains will, however, remain unrealized at best, or the integration project undermined, if regional economic integration is undertaken in a manner that ignores socio-economic divisions within and between states. It is in this context that a ‘two-tiered ASEAN’ divided between a richer core of original members and a set of poorer, underdeveloped new members threatens the future of the AEC project. For regional economic integration to be politically sustainable, it must be considered legitimate, enjoying the support not just of key commercial and state interests in the CLV states but, equally important, of domestic populations as well. There is growing evidence worldwide as well as from Southeast Asia, including the CLV states, that groups in domestic society are likely to challenge market liberalization and integration if they do not see its benefits equitably distributed among the population, especially if these groups are denied fair access to the wealth-creating opportunities afforded by such processes. To put it another way, an ASEAN Economic Community must be built on a social agenda as well as an economic integration pillar.3 However, the notion of a ‘two-tiered ASEAN’ diverts attention from the fact that socio-economic divisions are also found in the original members, notably in Indonesia, but also in Thailand and the Philippines, where large pockets of poverty and inequality persist. At a pragmatic level, this represents much unrealized growth and market potential in the region, aside from the possibility that these marginalized groups could undermine

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economic integration. Thus, a key challenge for ASEAN regionalism in the future, and one that poses a crucial test for the CLV states, is that of governance for development at both the regional and national levels to ensure that growth, equity and social justice are delivered. The governance issue confronts new and old members alike, although the Indo-Chinese states may be more constrained in their institutional capacity to undertake the required governance functions towards these multiple ends. The chapter concludes with an examination of how ASEAN is addressing these issues at the regional level.

Enlargement and the prospect for regional economic integration Although ASEAN was formed in 1967 primarily as a mechanism for mutual rapprochement among the founding states of Indonesia, Malaysia, the Philippines, Singapore and Thailand rather than as an anti-communist alliance (Antolik 1986, 1990), Communism nonetheless divided Southeast Asia into two distinct sub-regions (Anwar 2001: 26). This division was sealed with Vietnam’s 1978 invasion and subsequent occupation of Cambodia. However, strategic changes during the late 1980s and early 1990s facilitated the Indo-Chinese enlargement of ASEAN.4 Most importantly, the October 1991 Cambodian settlement through the Paris Peace Agreements transformed ASEAN’s policy towards Vietnam, although the seeds for the thaw in this relationship had been sowed much earlier with Vietnam’s 1986 embrace of economic reform and the more accommodating stance shown since 1988 by the Thai government (Acharya 2001: 102–103). Vietnam’s declaration in April 1989 that it would unconditionally withdraw its troops from Cambodia by September that year also helped the process. The initial act of enlargement was also made easier by the fact that ASEAN membership, unlike that in the European Union (EU), is not based on adherence to democratic norms of domestic political governance. Instead, ASEAN membership has, since its formation, included military regimes, authoritarian political systems, semi-democracies and democracies. This meant that Vietnam and Laos, which retained Communist political systems, were not disqualified from joining the association. Nevertheless, there is a convergence between the Indo-Chinese and ASEAN states on economic norms, while the CLV governments also find the prevailing ASEAN behavioural and procedural norms of inter-state engagement, particularly the norm of non-interference, consistent with their interests.5 The ASEAN norms impart considerable autonomy to member states within ASEAN and consequently play a crucial role in securing and/or legitimizing domestic regimes by allowing governments considerable leeway in dealing with politically important domestic matters. ASEAN’s new


members find them especially reassuring as they preclude scrutiny of or intrusion into the management of domestic matters, especially at a time when these countries are engaged in domestic economic reform while attempting to maintain authoritarian political control over domestic populations ( Job 1999: 15). In fact, ASEAN’s original members, possibly with the exception of Thailand and the Philippines, are similarly hesitant about moving away from these norms. Although ASEAN has adopted new institutional mechanisms that depart some way from non-interference in order to deal with transnational problems, a balance is always sought with protecting the rights of national governments to address domestic problems as they see fit (Acharya 2001: 151–157). Interestingly, ASEAN has departed furthest from these norms in its governance of the AFTA project, due to the compelling need to ensure its success.6 On the other hand, the IndoChinese states would have been unlikely even to consider joining ASEAN without the ‘protection’ offered them by the association’s non-intervention norm in political and security matters. Normative convergence in economics Paralleling the convergence between the Indo-Chinese states and the original members on the ASEAN norms, there is also a marked convergence between these two groups on economic norms. Both groups are engaged in fundamentally similar processes of economic development centred on the market mechanism, although the degree of market development in the transition economies lags behind that of the original ASEAN-6. Both groups of states have embraced similar economic policies and practices, resulting in a narrowing of the normative and policy gap in economics that once existed between them. Both Vietnam and Laos officially adopted their respective economic reform programmes in 1986, Vietnam with its doi moi (‘renovation’ or ‘new way’) and Laos with its ‘New Economic Management’, although the reform process had begun much earlier in the two countries. Both programmes were aimed at shifting from a centrally planned economy to a marketoriented system, including encouraging private enterprise, export-oriented industrialization, and foreign direct investment (FDI).7 The extensive and rapid pace of economic liberalization undertaken in these states is remarkable, given their economic history and underdevelopment (Kingsbury 2001). Many elements of state intervention continue, however, especially in the industrial and services sectors in Vietnam, while land reform has not always proceeded in a politically sustainable manner (Gainsborough 2002). Notwithstanding the delays and difficulties experienced over reform, there has been a process of normative convergence in economics between the Indo-Chinese states and the original ASEAN-6, such that ‘market integration is a leitmotif for the region, from the poorest to the mostdeveloped’ (Rigg 2003: 40). This normative consensus among the ASEAN states is, however, also embedded within a political framework in which


the interests of governing regimes are central. It is sustained by recognition in all the ASEAN states that market-based economic systems are more likely to deliver material wealth for citizens. The ability to deliver material wealth, and through that, social stability, has long been a crucial basis of political legitimacy in much of Southeast Asia (Alagappa 1995). In the case of Vietnam, the North Vietnamese model of socialist development imposed on a reunified Vietnam since 1975 had been unable to provide the Communist party leadership with the legitimacy it needed to sustain its political rule over both halves of the united country (Vasavakul 1995: 273–275). This led to growing popular discontent in Vietnam, which, together with the economic crisis in the country, undermined the legitimacy of the Communist party leadership. Doi moi, consequently, was a means to restore the legitimacy of the Vietnamese leadership through economic liberalization and market development at home, albeit within a socialist orientation and retention of a dominant state sector. The development of economic linkages with the capitalist world, including economic cooperation with ASEAN, constituted the foreign economic policy dimension of doi moi. Economic distress in Laos similarly accounts for the push towards market-based reform, with membership in ASEAN a key means to integrate land-locked Laos with the rest of the region (Kingsbury 2001: 190–191). In Vietnam and Laos, therefore, the economic reform process was also launched to restore the political legitimacy of the respective Communist parties that was being undermined by economic distress and growing social instability (Rigg 2003: 17). While there is a shared normative consensus in ASEAN in favour of market-based economic systems, it is also important to recognize that, ultimately, normative consensus rests on the capacity of market-based systems to deliver growth and social stability. Both these goals, which can reinforce each other, help to legitimize governing regimes. There is, however, the potential for tension between the two as well. The reform process so necessary for growth, if not governed properly, can undermine social stability. The process of reform, which always creates winners and losers, can threaten social stability if the resultant economic growth is insufficient to offset the dislocations caused by reforms, if adequate social safety nets are absent and if institutions that would allow people to benefit from economic opportunities are weak or non-existent. The end result may well be a weakening of the domestic consensus for reform, which ultimately undermines the prospect for regional economic integration given the intimate relationship between the two. Enlargement and ASEAN economic integration While the normative convergence on economics between the CLV states and the capitalist (original) members of ASEAN facilitated CLV participation in ASEAN’s key economic cooperation project of the 1990s, namely AFTA, the Indo-Chinese accession to the project was further eased through


concessions extended by the original members to the new members. First, extra time is given to the CLV states to implement their obligations under the three component programmes associated with regional economic cooperation – reduction of tariffs and liberalization of services and investment. In addition to this easing-in period, the new members are also offered preferential tariff-free access to the markets of the original members from January 2002 under the ASEAN Integrated System of Preferences (AISP), well before the 2010 target date for a zero-tariff AFTA (ASEAN Secretariat 2002: 59). At the national level, administrative, fiscal and tax reforms in the CLV states further help to offset the fiscal implications of tariff liberalization (Gates and Mya 2001: 14). Taken together, these various programmes contribute to the economic sustainability of CLV participation in ASEAN economic regionalism. Rather than enlargement undermining AFTA, one could instead argue that it was beneficial to the AFTA project because the entry of the new member states expanded, theoretically at least, the dimensions of the AFTA market. Enlargement to ten members offered investors a potential market of about 536 million people compared to the 385 million people in the original ASEAN-6,8 an increase of about 151 million. ASEAN leaders and officials considered market size an important selling point of AFTA, which the ASEAN governments employed as a means to help them counter the (perceived) diversion of FDI to China. The early 1990s saw a marked rise in global/regional competition for FDI as countries previously uninterested in foreign investors sought to attract them. Moreover, investors themselves were looking to locate their production in sites that had access to large and/or regional markets (Walter 2000: 65). By the 1990s, technological and organizational innovations had created a ‘regional’ logic to globalizing capital, with capital seeking to establish ‘integrated production and management systems within definable regions’ as part of its global expansion (Rodan 1993: 234). This structural dynamic put the individual ASEAN countries, most of them very small markets, at a disadvantage, particularly vis-à-vis China, which had emerged as a competing ‘regional’ investment site in the AsiaPacific region in view of its enormous market size and internal industrial complementarities. AFTA was ASEAN’s answer to this dilemma.9 Through regional tariff liberalization, the ASEAN governments offered foreign investors an alternative single regional investment/production space of which investors could take advantage in organizing integrated production networks. Enlargement potentially contributes to this exercise, as it expands the range of internal industrial complementarities available within AFTA. Southeast Asian regional production networks are already a growing feature of the region’s economic landscape, especially in the automotive, auto-parts and the electronic and electrical products sectors (ASEAN Secretariat 1999: 16). These are, for the most part, located within the


original ASEAN states. The potential is present, though, for new networks to extend to or involve the CLV states, particularly Vietnam. Southeast Asia is said to have considerable advantages, compared to China, derived from the legacy of its past growth and development performance, to help the region remain plugged into the production networks of multinational corporations (MNCs), provided governments upgrade their policy and institutional infrastructure (Felker 2003: 279). The completion of a single regional market will contribute significantly to that process. To this end, ASEAN has adopted the AEC project, which is aimed at deepening regional economic integration beyond tariff liberalization to include removal of non-tariff barriers, harmonization of product standards, liberalization of regional services and investment flows and the limited movement of skilled labour. Enlargement’s potential contribution to regional economic integration will remain unrealized, however, unless the population increase is translated into an increase in incomes and consumption in the ASEAN market. Although the incorporation of the CLV states does increase internal competition among individual ASEAN states for FDI, the original member states, perceiving a common threat of FDI diversion to China, nevertheless welcomed Indo-Chinese participation in AFTA. The CLV states also offer considerable investment opportunities for the original members, particularly Singapore, Malaysia and Thailand. Intra-ASEAN FDI constituted a significant share of the total FDI received by the Indo-Chinese states in the second half of the 1990s, averaging about 40 per cent.10 The growing volume of intra-ASEAN FDI flows may well be contributing to the development of closer regional economic interrelationships within ASEAN between the new members and the original set. There are dangers, however, if locals perceive this trend as leading to the domination of their economies by external interests, even if they are ASEAN interests – as occurred in January 2003, when Cambodian locals turned on Thai businesses in Cambodia. Despite their ready commitment to the tariff reduction phase of AFTA, the question of whether the Indo-Chinese states will derail ASEAN’s next stage of regional economic integration remains salient. Even the original members still find it difficult to overcome vested domestic interests and other domestic politico-social agendas to proceed rapidly on further regional liberalization, despite their longer experience as market-based economies and as participants in regional liberalization (Nesadurai 2003: 130–132). In the CLV states, politico-economic interests have questioned the projected gains of participation in AFTA by raising concerns about the future of domestic, especially state-owned, industries in the face of intra-regional competition and by warning of the possibility of ending up as a periphery within a rich ASEAN (Gates and Mya 2001: 17). Given such sentiments, it should not be surprising if there are delays in regional liberalization in services and investment owing to opposition from the CLV states, particularly when state-owned enterprises (SOEs) are involved.11


What will most likely overcome domestic resistance to further regional integration is a renewed sense of shared external danger. This perception may persuade all the states of Southeast Asia, including the CLV, to advance the next phase of regional economic integration, in much the same way that AFTA was galvanized during the 1990s by the shared threat of FDI diversion to China. More intense global market competition, particularly for FDI, further competitive challenges posed by China and the looming ASEAN-China Free Trade Area are all likely to provide an external push for advancing ASEAN-based liberalization. For the CLV in particular, China is a very real competitor given the similarities in their economic structures, including their institutional infrastructures and cost profiles. Regional liberalization via ASEAN then becomes one crucial means through which to position these economies vis-à-vis China.12 If external events such as these are regarded as major threats to economic growth, which remains a crucial regime-legitimating device in much of ASEAN including the CLV states, then regional liberalization will more likely advance, despite pockets of domestic resistance to it. The story does not end here, however. We also need to consider the political sustainability of regional market integration among domestic publics apart from business and state interests. To put it another way, it is insufficient to build an ASEAN Economic Community on the liberalization/integration pillar alone as it fails to take politics into account. To be sure, politics is often cited as the cause for liberalization setbacks – protectionism – and attributed to domestic vested interests associated with import-competing or home market-focused sectors/firms. While this represents one set of political forces likely to undermine regional liberalization, there are others that are increasingly attracting the attention of scholars, policy makers and international institutions. These forces emerge out of socio-economic divisions, from the political consequences of inequitable income/wealth distribution, including that of inequitable access to productive resources or assets. An overwhelming emphasis on growth and market efficiency as goals of economic governance is, consequently, inadequate and must be complemented by a commitment to the values of distributive justice and equity (Higgott 2000). Any economic system in which these values are neglected may come to be regarded as unjust and consequently be contested, a point Adam Smith also underscored.13 This is why the socio-economic question is especially relevant to the future of ASEAN economic integration.

The political sustainability of regional economic integration For sure there are economic reasons to address socio-economic issues in the region, aside from the intrinsic moral worth of such an exercise. Development economists have long pointed to the importance of distribution – to


attain equity in assets and incomes – as key to sustaining growth. Poverty and inequality, working through reduced productivity, tend to reduce the prospects for growth (Dreze and Sen 1987), undermining the full or effective market potential of an economy due to unrealized production, income and consumption gains. Today, two neo-classical/neo-liberal propositions – that growth will eventually ‘trickle down’ to the poor and that inequality is an inevitable outcome but necessary to growth in a market economy – are widely challenged. The growing consensus is that countries with an initial condition of a relatively equitable distribution of assets and income tend to grow faster than countries with high initial inequality (Dagdeviren et al. 2001: 6). Aside from these essentially economic consequences of socio-economic divisions, there are sound political reasons why distributive equity is necessary if governments wish to maintain open market systems increasingly recognized as the route to wealth creation. Market integration through liberalization, whether undertaken unilaterally, globally or regionally, generates winners and losers. While net gains may be positive over the long run, a point mainstream economics emphasizes, short-run adjustment costs, unemployment in particular, should not be ignored, since it is from such dislocations that challenges to liberal market systems arise (Kaul et al. 1999). Moreover, these ‘short-run’ dislocations can actually persist for considerable periods of time in the current context of globalization. By altering the nature and organization of production and work, as well as the pace and scope of FDI and trade flows, globalization has increased the volatility associated with economic activity, making for greater vulnerability, unlike in the past, even for those in the middle-income strata (Zoellick 1997/98: 42; Kirby 2002: 205–206; Stiglitz 2002). Moreover, widening and/or enduring inequities, as well as perceptions of injustice, tend to accentuate the political effects of these dislocations and generate opposition by groups in society to market liberalization (Higgott and Nesadurai 2002). This is especially the case if people are unable to take advantage of the economic opportunities that liberalization affords because they have been denied access to economic rights and resources either through absent or weak property rights systems or through outright exploitation (de Soto 2000). In fact, studies have shown that local resistances to market integration in Southeast Asia are not always about people rejecting the market, which if anything is seen as bringing opportunities for wealth creation. Rather, resistance often reflects local people rejecting economic activities they view as unjust, involving arbitrariness14 in their execution, or those involving outright exploitation by state/local authorities. What local populations want is fair access to the wealth-creating opportunities of the market (Rigg 2003: 58). There is growing worldwide evidence that we ignore such socioeconomic issues at our peril. As events in Indonesia in May 1998, Argentina in December 2001 and more recently in the Indian elections of May 2004


reveal, a widespread sense of inequity, marginalization and injustice can lead to open political challenges to governments of the day, as do the growing number of protests directed against multilateral bodies since the late 1990s. Even proponents of further (rapid) economic liberalization now caution that market integration may well hold within it the seeds of its own demise if it fails to deliver a more just economic order.15 The answer is not to retreat from open market systems, but to aim for a balance between growth/efficiency and distributive justice in governing economies, including in regional economic governance. The socio-economic divide and regional economic integration How do these points relate to ASEAN more generally and the issue of its Indo-Chinese enlargement more specifically? After all, the general experience in Southeast Asia is one of increasing prosperity for rich, poor and the middle classes during the years of rapid economic growth. Nonetheless, the World Bank has warned of a growing disparity between regional growth and individual poverty in East Asia. Despite growth lifting 30–40 million people out of poverty in 2003, the number of poor in the Philippines, Indonesia, Cambodia, Laos and Papua New Guinea was expected to rise.16 Of some concern is that four of the five ‘problematic’ East Asian countries cited, including two Indo-Chinese states, are in ASEAN. Aside from poverty, the bank is also concerned that growing inequities in the region will undermine the consensus for regional integration as well as lead to ‘social and inter-country friction’.17 The January 2003 violence against Thai business interests and people in Cambodia that began over a rumour concerning the ownership of the historic Angkor Wat is a case in point. While perhaps an extreme case, this episode nevertheless reveals the critical importance of the socioeconomic dimension to building a regional economic community. The anger of ordinary Cambodians directed against the Thais stemmed also from a sense of economic deprivation among the former, further fuelled by their growing resentment at Thai dominance of the Cambodian economy (Phar 2003). While there are allegations that competing business actors as well as politicians manipulated the episode,18 these top-down manipulations must have struck a resonant chord with the domestic population to lead to violence. This episode reveals the dangers to regional economic integration if such an exercise succeeds only in recreating a ‘north–south’ divide within ASEAN, which could well undermine the political sustainability of the ASEAN Economic Community. The problem of a two-tier ASEAN is indeed very real (see Table 11.1). Despite the fall in per capita incomes in the original ASEAN-6 since 1996, the rich-poor divide between new and original members remains rather stark. These figures also suggest that the potential of an enlarged


ASEAN market will remain only a theoretical possibility if its expanded population component is not translated into higher incomes and consumption. The notion that enlargement has increased the market size of ASEAN to over 500 million people with a combined GDP of US$500 billion, a claim often made, masks the unevenness in enlargement’s contribution to the ASEAN market. Indo-Chinese enlargement contributes 6.7 per cent of ASEAN’s GDP (calculated from Table 11.1) compared to 18 per cent of ASEAN’s total population.19 In other words, the full market or economic potential of enlargement remains unrealized at present, contributing to the partial nature of the ASEAN market. That the ASEAN market remains a partial market is, to some extent, reflected in the still limited share of intra-ASEAN trade, which remains at about 20–25 per cent of total ASEAN trade despite rising absolute levels of intra-regional trade. While the level of intra-ASEAN trade has grown over the years, especially with Southeast Asian production networks a growing feature, the percentage figures reveal nonetheless that much of ASEAN’s production remains destined for markets outside Southeast Asia. ASEAN’s capacity as a significant consuming region is limited until such time as economic growth and development raise regional demand for a wider range of goods and services produced within ASEAN. As it is, the 2002 per capita income in ASEAN was only US$1,144 despite the presence of two high-income economies (Brunei and Singapore) and one upper middle-income economy (Malaysia) (Table 11.1). If the long-term viability of an ASEAN Economic Community depends also on achieving a balance between exporting outside the region and intra-regional demand, then addressing socio-economic issues becomes all the more pressing. Table 11.1 Per capita incomes and national incomes (GDP) in ASEAN, 1996 and 2001 Country

Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam ASEAN

GDP per capita (US$)

GDP (current market prices) (US$ million)

1996

2002

1996

2002

17,096 312 1,167 393 4,766 109 1,184 25,127 3,134 337 1,504

12,090 299 819 329 3,914 104 974 20,515 2,043 439 1,144

5,216 3,341 227,312 1,860 100,888 4,956 82,840 92,227 182,107 24,658 725,404

4,278 3,984 173,371 1,805 94,910 5,445 77,614 86,997 126,482 35,099 609,985

Source: ASEAN Surveillance Coordinating Unit (ASCU) database (www.aseansec.org/ macroeconomic/aq_sel1.htm (accessed July 2004).


The socio-economic divide in ASEAN is, however, not simply between old and new members. The figures on per capita income reveal that even original members such as Indonesia and, to a lesser degree, the Philippines are closer to the Indo-Chinese states than they are to the other original members. Poverty indicators further confirm this point (see Table 11.2). The 1997–98 financial crisis, of course, must take part of the blame. Nevertheless, these numbers indicate the extent to which socio-economic development must remain a central focus in ASEAN. Moreover, there is a need to go beyond macro or state-based figures. Such data sets, while they allow for inter-state comparisons, do not provide a full picture of the political consequences of socio-economic divisions in society, particularly of local resistances, tensions and unrest that could impact on the future of regional economic integration. Knowledge of the ‘losers’ of reform processes in the CLV states is sparse, although preliminary work in this area suggests that the overall gains that are seen tend to mask the diverse experiences of local populations, some of them highly negative (Rigg 2003: 178). Both case studies and anecdotal evidence can help overcome the knowledge gap in this area, approaches that the Asian Development Bank also endorses (ADB 2001).

Local resistances While economic reforms in the CLV states have been positive on the whole, reforms of state-owned enterprises (SOEs) in particular have created labour dislocations, particularly in contexts where unemployment and under-employment are high and few social safety nets exist (Gates and Mya 2001: 17). In Vietnam, for instance, labour strikes and industrial disputes have become commonplace since the early 1990s, particularly in Table 11.2 Incidence of poverty in ASEAN Country

Cambodia (1999) Laos (1997) Vietnam (1998) Indonesia (2002) Philippines (2000) Thailand (2000) Malaysiaa (1999) a

percentage of poor households; was 9.7 per cent.

Population in poverty (%) Total

Urban

Rural

35.9 38.6 37.4 18.2 34.2 13.1 8.1

25.2b 26.9 9.0 14.5 23.9 10.2 3.8

40.0 41.0 44.9 21.1 47.4 15.5 13.2

b

excluding Phnom Penh, where poverty incidence in 1997

Data is based on national poverty lines and for different periods as indicated. Source: Asian Development Bank statistical database (www.adb.org/Documents/Books/ Key_Indicators/2003).


the non-state sector, according to the International Labour Organization (ILO).20 While some of these strikes are unjustified, most others involve valid grouses over employers violating the Labour Code, namely failing to sign labour contracts with their workers, non-payment of salaries, bonuses and social insurance, dangerous working conditions and meting out overly harsh punishment for infringements of factory rules.21 The ILO has also warned that growing youth unemployment is a major threat to social stability, while rural unemployment is fuelling large-scale unplanned migration to cities, compounding urban unemployment.22 Reform plans in Vietnam to reduce the number of state employees by 15 per cent as well as the growing number of redundancies from loss-making SOEs aggravate the situation,23 placing a premium on maintaining high growth rates to create jobs. The pressure on the domestic labour market is somewhat eased through Vietnam’s labour exports – some 46,000 Vietnamese workers went abroad in 200224 and a record number of 75,000 in 2003, according to the Ministry of Labour, War Invalids and Social Affairs. Malaysia was the biggest importer of Vietnamese migrant labour.25 Labour mobility thus offers governments a safety valve, enabling them to temporarily ease the pressures of a domestic labour surplus and thereby helping them to maintain the political momentum for economic reform and integration. Although the topic of labour mobility within ASEAN is politically sensitive, a regional framework for the orderly movement of labour within ASEAN seems a logical next step in the push towards ASEAN economic integration. There is already considerable labour movement within the region, both legal and illegal, while a number of states have bilateral arrangements to govern cross-border labour movements. Regional labour movements, if well managed, are an important complement to regional economic integration based on the free intra-regional movement of goods, services and capital. Compounding the growing labour tensions in Vietnam is the rising degree of rural unrest in various parts of the country, nearly all of them linked to land disputes involving local elites and allegations of corruption. The reform years, moreover, have witnessed a growing degree of landlessness among the local population, even as party and state officials have emerged as owners of large landholdings in the country (Gainsborough 2002: 698–699). The plan to clamp down on rural protests through arrests and jail sentences can only be a temporary measure if the underlying grievances are not addressed.26 The danger is that the government, prompted by fears over the political and security consequences of social instability, will delay domestic economic reforms as well as regional market integration. Vietnam’s deputy prime minister, Vu Khoan, emphasized in March 2003 that economic reforms, including privatization, would not be allowed to threaten social stability.27


The rising incidence of local resistances and conflicts in rural Vietnam is especially disturbing, given that Vietnam has long been noted for its more egalitarian income and land distribution compared to both the colonial era and to other Southeast Asian economies such as Thailand, the Philippines and Indonesia (Booth 2002: 49). It would be tempting to dismiss these trends as the inevitable outcome of economic growth in accordance with neo-classical economic theory (Beresford and McFarlane 1995) or to the normal grievances of those displaced by economic transition, as a few Vietnamese officials argue.28 We need to be cognizant, however, of the political consequences of these episodes if they are the outcome of arbitrary economic decisions and actions by the powerful and wellconnected that deny economic opportunities to ordinary people. Officials themselves have conceded that many of these protests – directed at shady land deals, corruption and mismanaged rural cooperatives – are well grounded.29 The experience of countries such as Indonesia and Thailand during the 1990s is instructive in this regard. The rapid growth and rising average incomes that Thailand and Indonesia registered before the financial crisis were also accompanied by widening disparities in income and wealth distribution as well as growing feelings of marginalization, deprivation and injustice among segments of the population, which led to increasingly frequent and strident protests in these countries, especially outside the cities and among the manufacturing labour force (Higgott and Nesadurai 2002). There was very little general awareness of such events among publics and observers of ASEAN as they were masked by the euphoria over growth during the economic boom. The lessons are clear, however. Socio-economic issues, already a growing problem in the CLV, need to be addressed alongside programmes for economic liberalization and regional integration if these are to be politically sustainable.

Conclusion: implications for regional economic governance Three inter-related points emerge from this discussion. The first is that socio-economic grievances, if unaddressed, can have significant political consequences and undermine the prospects for regional economic integration, either by weakening the consensus on the project or by driving away investors. Second, a truly enduring ASEAN Economic Community can only be realized if it is considered just and therefore legitimate by the region’s citizens. Third, it is not merely enlargement that poses a challenge to the ASEAN Economic Community project. Rather, these socio-economic problems are found across ASEAN, making it somewhat misleading to speak of a two-tiered ASEAN (Rigg 2003: 129). Nevertheless, the new ASEAN members face a more daunting set of challenges


compared to the original members, given their transition status and weaker institutional capacities for national socio-economic governance. In particular, economic governance must aim for both growth/efficiency and distributive justice. Otherwise, there is a strong prospect of open contestation against the very policies – economic liberalization and regional integration – that have the best chance of delivering economic well-being in the long run. While the CLV states have made enormous strides in reducing poverty and fostering economic growth, they still have a big agenda of national economic reforms to carry out to facilitate their participation in ASEAN economic integration. National level programmes are in place in these states to accomplish these tasks, involving assistance from multilateral agencies, ASEAN’s industrial country dialogue partners and ASEAN itself. As for regional level governance, there is a variety of programmes at the ASEAN level that are aimed at reducing intra-ASEAN disparities and can help facilitate regional economic integration. Among the most notable are the Initiative for ASEAN Integration (IAI), Mekong Basin Development Cooperation, the Joint ASEAN-World Bank Initiative on Mainstreaming Social Development (MSD) and the ASEAN-UNDP (United Nations Development Programme) Partnership Facility. Also, the ADB is currently helping ASEAN develop a social protection programme. While the first two of these are practical programmes involving cooperation in a wide range of areas including infrastructure and human resources development, the Mainstreaming Social Development (MSD) Initiative attempts to alter, at a normative level, the core goals on which national and regional economic governance are based. Its main aim is to highlight that growth alone is insufficient. Instead, growth must be integrated at the planning level with a social development agenda, which would include poverty alleviation and social protection, labour and employment, and health issues. The MSD Initiative, together with technical and advisory services offered under the ASEAN-UNDP Partnership Facility30 and the ADB, are attempts to extend regional understandings and practices of development to include that of human/social development. These programmes are vital as attempts to embed regional economic integration within a single framework that takes socio-economic governance as seriously as market integration. While these major social development programmes are laudable, especially for a regional association of largely developing country members, there is a pressing need for ASEAN to develop better institutional links with civil society groups to build an early warning system for socioeconomic tensions, conflicts and crises in the region. In short, regional economic governance needs to be more inclusive of society. Although national governments in the region interact and consult with business actors, civil society – the third and no less crucial leg of the triangle – has been neglected. Interaction with civil society is vital because some form


of institutionalized engagement with non-governmental organizations (NGOs) that work with local communities can be helpful as a source of early warnings of local grievances, which if unchecked have the potential to undermine regional economic integration. The ASEAN Secretariat is, in fact, working to convince ASEAN member governments of the importance of local NGO participation in addressing socio-economic concerns in the region.31 As the preceding discussion has revealed, macro indicators, even if they are obtained in timely fashion, often mask these local developments, requiring a focus below the state at the level of local communities. The question is whether the ASEAN governments are ready to allow NGOs, when they assume such an early warning role, to operate unimpeded.32 This, in the end, can help ensure that the Indo-Chinese enlargement of ASEAN will advance rather than undermine regional economic integration and make an ASEAN Economic Community a politically sustainable project.

Notes 1 The founding members of ASEAN in 1967 were Indonesia, Malaysia, the Philippines, Singapore and Thailand. Brunei joined the association in 1984. 2 The terms ‘regionalism’ and ‘regional integration’ are used interchangeably. 3 Hence, the decision to form an ASEAN Socio-Cultural Community as well as an ASEAN Economic Community is timely (ASEAN 2003). 4 These strategic changes are discussed in Acharya (2001: 103–108). 5 The ASEAN norms are discussed in Busse (1999), Job (1999) and Acharya (2001). 6 For details, see Nesadurai (2003: 163–169). 7 These reforms are detailed in Rigg (2003: 18, Table 1.5). 8 These are 2002 mid-year population figures from the Asian Development Bank (www.adb.org). 9 While other motivations prompted the 1991 ASEAN decision to form AFTA, the FDI motivation very soon became the project’s primary driving force (Nesadurai 2003: 80). 10 Calculated from Tables 2.5 and 3.3 in ASEAN Secretariat (1999). 11 On SOEs in Vietnam, see Painter (2003). 12 Numerous ASEAN leaders have already called for ASEAN to consolidate its own economic regionalism before the ASEAN-China FTA comes into being (Nesadurai 2003: 181). 13 Adam Smith, in his Theory of the Moral Sentiments, emphasized the importance of equity in society as the minimum necessary quality that must exist before the free market economy, as outlined in Wealth of Nations, is able to work as envisaged. 14 The absence of arbitrariness is central to all forms of justice. See Rawls (1971). 15 Address by World Bank president, James Wolfensohn, to the Board of Governors of the Bank, 14 October 1998 (Wolfensohn 1998). The speech is available from the World Bank website (www.worldbank.org), classified under ‘Speeches by James Wolfensohn’. 16 Address by Jemaluddin Kassum, vice president for East Asia and the Pacific, World Bank, delivered in Singapore to the Euromoney Issuers and Investors Forum, 19 March 2003. The speech is available from the World Bank website (www.worldbank.org), classified under ‘Speeches by Jemaluddin Kassum’ (Kassum 2003).


17 Address by Jemaluddin Kassum, vice president for East Asia and the Pacific, World Bank, delivered in Singapore to the Euromoney Issuers and Investors Forum, 19 March 2003. The speech is available from the World Bank website (www.worldbank.org), classified under ‘Speeches by Jemaluddin Kassum’. 18 See Financial Times (2003). 19 Calculated from ADB population statistics (www.adb.org/Documents/Books/ Key-Indicators/2004/pdf/rt06.pdf ). 20 See Agence France Presse (AFP) (2003a, 2003b). 21 See Vietnam Investment Review (2003a). 22 See Vietnam Investment Review (2003b). 23 See Vietnam Investment Review (2003b). 24 See Xinhua (2003). 25 See Xinhua (2004). 26 See AFP 2003c. 27 See ‘Deputy Premier Vu Khoan stresses three-strand renovation policy’, BBC, 6 March 2003. 28 See Far Eastern Economic Review (FEER) (2000). 29 See FEER (2001). 30 See ASEAN Secretariat (2001). 31 Telephone interview with senior official from the ASEAN Secretariat, Jakarta, 1 July 2003. 32 See Lizee (2002) on CLV attitudes towards NGOs.

References Acharya, Amitav (2001) Constructing a Security Community in Southeast Asia: ASEAN and the Problem of Regional Order, London: Routledge. ADB (Asian Development Bank) (2001) Key Indicators 2001: Growth and Change in Asia and the Pacific, Manila: Asian Development Bank. AFP (Agence France Presse) (2003a) ‘Labour Relations Essential to Vietnam’s Equitable Economic Growth: US’, 8 January. –––– (2003b) ‘ILO Opens Doors in Vietnam Amid Growing Labour Unrest’, 17 February. –––– (2003c) ‘Appeal Court in Vietnam Upholds Jail Terms for 24 farmers Over Unrest’, 17 April. Alagappa, Muthiah (1995) ‘Seeking a More Durable Basis of Authority’, in Muthiah Alagappa (ed.) Political Legitimacy in Southeast Asia: The Quest for Moral Authority, Stanford CA: Stanford University Press: 293–334. Antolik, Michael (1986) ASEAN: The Anatomy of a Security Entente, PhD dissertation (unpublished), Columbia University, New York. –––– (1990) ASEAN and the Diplomacy of Accommodation. New York: M.E. Sharpe. Anwar, Dewi Fortuna (2001) ‘ASEAN’s Enlargement: Political, Security and Institutional Perspectives’, in Mya Than and Carolyn Gates (eds) ASEAN Enlargement: Impacts and Implications. Singapore: Institute of Southeast Asian Studies (ISEAS): 26–44. ASEAN (2003) Declaration of ASEAN Concord II (Bali Concord II), Bali, Indonesia, 7 October. ASEAN Secretariat (1999) ASEAN Investment Report 1999, Jakarta: ASEAN Secretariat. ASEAN Secretariat (2001) ‘ASEAN and UNDP team up to promote regional development and integration’, press release, 18 June.


ASEAN Secretariat (2002) ASEAN Annual Report 2001–2002, Jakarta: ASEAN Secretariat. Beresford, Melanie and McFarlane, Bruce (1995) ‘Regional Inequality and Regionalism in Vietnam and China’, Journal of Contemporary Asia, 25: 1: 50–72. Booth, Anne (2002) ‘Rethinking the Role of Agriculture in the “East Asian” Model’, ASEAN Economic Bulletin, 19: 1: 40–51. Busse, Nikolas (1999) ‘Constructivism and Southeast Asian Security’, The Pacific Review, 12: 1: 39–60. Dagdeviren, Hugo, van der Hoeven, Rolph and Weeks, John (2001) Redistribution Matters: Growth for Poverty Reduction, Geneva: International Labour Organization (mimeo). de Soto, Hernando (2000) The Mystery of Capital, London: Black Swan. Dreze, Jean and Sen, Amartya (1987) Hunger and Public Action, Oxford: Clarendon Press. FEER (Far Eastern Economic Review) (2000) ‘Vietnam: Passing the Buck’, 7 December. –––– (2001) ‘Vietnam: Safety Valve of the People’, 3 May. Felker, Greg (2003) ‘Southeast Asian Industrialisation and the Changing Global Production System’, Third World Quarterly, 24: 2: 255–282. Financial Times (2003) ‘Cambodian Opposition Blames Premier for Anti-Thai Riots’, 3 February. Gainsborough, Martin (2002) ‘Political Change in Vietnam: In Search of the MiddleClass Challenge to the State’, Asian Survey, 42: 5: 694–707. Gates, Carolyn and Mya Than (2001) ‘ASEAN Enlargement: An Introductory Overview’, in Mya Than and Carolyn Gates (eds) ASEAN Enlargement: Impacts and Implications, Singapore: Institute of Southeast Asian Studies (ISEAS): 1–25. Higgott, Richard (2000) ‘Contested Globalisation: The Changing Context and Normative Challenges’, Review of International Studies, 26: 131–153. –––– and Nesadurai, Helen E. S. (2002) ‘Rethinking the Southeast Asian Developmental Model: Bringing Ethical and Governance Questions In’, ASEAN Economic Bulletin, 19: 1: 27–39. Job, Brian (1999) ‘ASEAN Stalled: Dilemmas and Tensions Over Conflicting Norms’, paper presented to the 1999 Annual Meeting of the American Political Science Association, Atlanta, US, 2–5 September. Kassum, Jemaluddin (2003) ‘Beyond Miracles and Crises: A New Asia’, Singapore, 19 March. Available at www.worldbank.org. Kaul, Inge, Grunberg, Isabelle and Stern, Marc (1999) Global Public Goods: International Cooperation in the 21st Century: Executive Summary, Oxford: Oxford University Press. Kingsbury, Damien (2001) Southeast Asia: A Political Profile, Oxford: Oxford University Press. Kirby, Peadar (2002) ‘The World Bank or Polanyi: Markets, Poverty and Social Well-being in Latin America’, New Political Economy, 7: 2: 199–219. Lizee, Pierre (2002) ‘Human Security in Vietnam, Laos and Cambodia’, Contemporary Southeast Asia, 24: 3: 509–527. Nesadurai, Helen E. S. (2003) Globalisation, Domestic Politics and Regionalism: The ASEAN Free Trade Area, London: Routledge. Painter, Martin (2003) ‘The Politics of Economic Restructuring in Vietnam: The Case of State-Owned Enterprise “Reform”’, Contemporary Southeast Asia, 25: 1: 20–43. Phar, Kim Beng (2003) ‘The Problems of a Two-Tiered ASEAN’, Asia Times, 20 February. Available at www.atimes.com.


Rawls, John (1971) A Theory of Justice, Cambridge MA: Harvard University Press. Rigg, Jonathan (2003) Southeast Asia: The Human Landscape of Modernisation and Development, 2nd edn, London: Routledge. Rodan, G. (1993) ‘Reconstructing Divisions of Labour: Singapore’s New Regional Emphasis’, in R. Higgott, R. Leaver and J. Ravenhill (eds) Pacific Economic Relations in the 1990s: Cooperation or Conflict?, Boulder CO: Lynne Rienner: 223–249. Stiglitz, Joseph (2002) Globalisation and Its Discontents, London: Allen Lane/Penguin. Vasavakul, Thaveeporn (1995) ‘Vietnam: The Changing Models of Legitimation’, in Muthiah Alagappa (ed.) Political Legitimacy in Southeast Asia: The Quest for Moral Authority, Stanford CA: Stanford University Press: 257–289. Vietnam Investment Review (2003a) ‘Tis the season to strike for a bigger bonus’, 6 January. –––– (2003b) ‘Challenges of a growing labour force’, 28 April. Walter, Andrew (2000) ‘Globalisation and Policy Convergence: The Case of Direct Investment Rules’, in Richard A. Higgott, Geoffrey R. D. Underhill, and Andreas Bieler (eds) Non-State Actors and Authority in the Global System, London: Routledge: 51–73. Wolfensohn, James (1998) ‘Remarks to the Conference Board’, New York, 14 October. Available at www.worldbank.org. Xinhua (2003) ‘Some 30,000 Vietnamese sent abroad as migrant workers in 4 months’, 21 May. –––– (2004) ‘Labour exports betters Vietnamese life’, 11 March. Zoellick, Robert C. (1997/98) ‘Economics and Security in the Changing Asia-Pacific’, Survival 39: 4: 29–51.

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12 The birth and growth of ASEAN+31 Takashi Terada

Introduction Many regions of the world have benefited from the establishment of regional organizations. Yet East Asia, which consists of China, Japan, South Korea and the ten members of the Association of Southeast Asian Nations (ASEAN), lacked such a cooperative mechanism until the first informal ASEAN+3 summit meeting was organized in Kuala Lumpur in December 1997. ASEAN+3 emerged as the first regional institution involving only East Asian nations to promote political and economic cooperation at senior official, ministerial and heads-of-government levels. The professed aim of the meetings is to enhance interactions and foster closer links through increased opportunities for cooperation and collaboration, thereby promoting mutual understanding, trust, good neighbourliness and friendly relations, in the interest of furthering peace, stability and prosperity in the region ( Joint Statement on East Asian Cooperation 1999). The 2000 Finance Ministers’ Meeting in Chiang Mai launched new mechanisms for financial cooperation, including a network of currency swap and repurchase arrangements. The Leaders’ Meeting, held in Singapore in November 2000, reached an agreement to examine the feasibility of establishing an East Asian Free Trade Area (EAFTA) and an East Asian Summit. Given the region’s total of 1.9 billion people and its GDP of US$2 trillion, the ASEAN+3 meetings are expected by some observers to form the basis for the emergence of a huge single market, possibly making a major contribution to the creation of a tripartite world economic system (Bergsten 2000). Regionalism is a concrete manifestation of regional consciousness. It needs a boundary to differentiate insiders (members) from outsiders (non-members) and a regional concept that determines this geographical boundary. East Asia is a fresh regional concept since there was no regionalism based on the East Asian concept before the East Asian Economic Caucus (EAEC) was proposed in 1990, and the idea of ‘Asia Pacific’, on which APEC was built, already existed as a well-entrenched regional concept. Following the constructivist approach, which focuses on the processes by which perceptions of regional ‘togetherness’ emerge and evolve and how these influence the formation of a regional institution, this chapter analyses how and why the East Asian regional concept was constructed

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and how the countries in the region came to accept it, despite some countries’ preferences for the competing ‘Asia Pacific’ concept of APEC. The fact that the EAEC did not materialize but the ASEAN+3 meetings were successfully established despite the same membership composition seems to indicate that a major factor was a clearer consciousness on the part of member countries of belonging to the same region, East Asia, a consciousness that was sufficient to sustain their intention to make a commitment to mutual cooperation. The road towards the establishment of ASEAN+3 synchronized with the development of two other major regional institutions in America and Europe: the expansion of the European Union (EU) to include new members and the evolution of the North American Free Trade Agreement (NAFTA) towards the Free Trade Area of the Americas (FTAA). Also, East Asian countries had a shared experience: the Asian financial crisis, which made manifest the need for an East Asian regional approach to financial issues and intensified a consciousness of the mutual interdependence between Northeast and Southeast Asian countries. It is thus essential to examine whether progress towards the creation of ASEAN+3 was associated with these external and internal movements as centripetal forces and, if so, how. The crux of the argument is how the fact that these other regional institutions were engaged in the creation or advancement of their own new regional identities and the fact that East Asian countries had to tackle the Asian financial crisis by themselves promoted an awareness of ‘us’ and ‘them’ among East Asian countries. This chapter will draw attention to this elementary aspect in the growth of regionalism, the construction of a regional concept, based on the constructivist claim that ‘there is a direct positive correlation between what actors do and what actors are’ (Cronin 1999: 131). This chapter also discusses the possibility of forming a community in East Asia such as Japanese prime minister Koizumi proposed in his January 2002 speech in Singapore. Koizumi argued that the ASEAN+3 framework should be fully utilized to establish a fully fledged East Asian institution. Recent regional trends are encouraging: the three Northeast Asian economies, Japan, China and South Korea, each agreed to forge an FTA with ASEAN, and Malaysia and China proposed the organization of an East Asian summit. This chapter explores the possibility of an East Asian FTA as an approach to the realization of pan-East Asian regionalism, while highlighting the obstacles that might be confronted by efforts to implement it.

Regional concept Without the concept of a region, there would be no way to demarcate the region for which common institutions are to be created. If Brazil were a member of the free trade agreement linking the United States and

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Canada, the agreement would not be able to go by the name NAFTA. There would need to be a new regional concept that could embrace all actual and potential members. Thus, a new name, the FTAA, was coined to refer to the project of a free trade zone involving South as well as North America. In order to build a regional institution, there must be a consensus or at least loose agreement among the potential members on the concept of the region. If there is a move to create a new regional institution with a fresh combination of countries, a new regional concept may have to emerge first. The emergence of a new concept of region may presuppose a process of socialization through such means as official diplomacy, academic or business gatherings, publications, speeches, etc. Various factors may encourage the countries within a ‘region’ to accelerate their acceptance of such a concept. These factors, acting as centripetal forces, can be inspired, for instance, by the element of a ‘common Other’ (Wendt 1994: 389) intensifying the consciousness of regional identity. Constructivists argue that regions do not exist naturally but are subjectively constructed by human beings. Any regionalism inevitably draws lines, creating borders between members and non-members. The existence of ‘others’ can contribute to distinguishing ‘us’ from ‘them’ and this comparative process is instrumental in consolidating identity among the ‘in group’. For instance, during the cold war, confrontation with the Soviet bloc helped define the identity of ‘the West’ among the allies of the United States. Because ‘it is the nature of identification that determines how the boundaries of the self are drawn’ (Wendt 1994: 386), the exclusion of certain regions or countries following the establishment of a regional institution helps to fortify collective identity among member countries. In addition, the experience of common problems by certain countries helps to distinguish ‘us’ from ‘them’, helping to entrench a collective regional identity among them. In other words, the strengthening of regional ties can be helped by similar events outside the region. For instance, Hellmann identified as a factor contributing to the emergence of a stronger East Asian sub-system in the early 1970s: shared experiences of turbulence and change, brought on primarily by the political, cultural, and economic impact first of Western colonialism and then of the cold war [which] encouraged the nations of East Asia to view themselves as a distinct group. (Hellman 1972: 29) It is imperative to examine how ‘common others’ and ‘common experiences’ as centripetal forces help to enhance the consciousness of an East Asian identity and how that identity has been shared by the countries in the region.


The EAEC: a pioneering failure The former Malaysian prime minister Mahathir’s EAEC proposal was significant for the fact that he introduced the concept of East Asia, integrating Northeast Asia and Southeast Asia into a single region. As Domingo Siazon, former Filipino foreign minister, notes, ‘EAEC . . . provided the initial rationale for the establishment of an East Asian grouping’.2 Until then, East Asia had tended to mean Northeast Asia, consisting of Japan, China, South Korea, Hong Kong and Taiwan.3 Southeast Asia generally referred to the ASEAN members (Singapore, Indonesia, Thailand, the Philippines, Malaysia and Brunei) and Indo-China (Vietnam, Laos, Myanmar and Cambodia), which were not generally included in the concept of ‘East Asia’, due partly to ideological confrontations during the cold war era. The EAEC proposal was premised on the concept of a wider and more unified region, consolidating these different geographical concepts into ‘East Asia’. East Asia was a new regional concept since most of these countries had so far been involved in ‘Asia Pacific’ ‘Southeast Asian’ or ‘Pacific’ regional institutions for economic cooperation, including APEC, ASEAN and the Pacific Economic Cooperation Council (PECC). It was difficult for regional countries to accept the ‘East Asia’ concept initially because APEC loomed as a useful regional institution and many countries in East Asia were thus loathe to rush into accepting another concept of regionalism. Malaysia, after launching the concept, decided to work together with the other ASEAN members to refine and promote the EAEC idea. This joint exercise among ASEAN members helped the concept of East Asia to become accepted in Southeast Asia, an essential process in the establishment of an East Asian regional identity. This was an important model for the evolution of a consensus in the region on the future establishment of an East Asian regional institution. Discussions and projects undertaken during the 1990s through a number of ministerial and summit meetings of officials and decision makers about the need for a regional institution in East Asia were significant means of spreading the concept. ASEAN’s declarations represented ASEAN’s consensus about creating an EAEC. According to Siazon, from 1991 to 1997 the ASEAN foreign ministers discussed the EAEC during their annual meetings, reiterating their commitment toward its early realization. The joint declarations of the ASEAN ministerial meetings from 1995 to 1997 indeed referred to the EAEC, and the EAEC was also discussed during the ASEAN summits in Singapore and Bangkok in 1992 and 1995 respectively. No shared interests in the EAEC Apart from the existence of competing concepts of ‘the region’, the lack of shared interests among the potential members was another factor hindering the formation of the EAEC. Some regional countries were

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cautious about the EAEC partly because of its retaliatory nature. The formation of NAFTA and the poor outlook of the Uruguay Round gave Mahathir the impetus to develop the EAEC. However, the EAEC was seen as a prospective regional trading bloc and its protectionist connotations would have divided the world economy into three blocs. Malaysian foreign ministry sources made it clear that the EAEC concept was retaliatory in nature and not merely a consultative forum: ‘The Prime Minister has called it a spade for a spade . . . You see the growing existence of trade blocs . . . Smaller developing countries like Malaysia are extremely vulnerable’ (Asiaweek, 1991). Many Asian countries were uncomfortable with the idea of a trading bloc that would stand in opposition to Europe and America. Thus, Tommy Koh, formerly Singapore’s ambassador to the United States, remarked that prime minister Mahathir’s mistake was that ‘the way he put it and the language were wrong . . . He had to drop the idea because there was no consensus in ASEAN’ (personal interview, 16 February 2001). ASEAN members consequently agreed in 1992 that the EAEC would be only a caucus within APEC, thus diluting Mahathir’s aggressive and retaliatory rhetorical nuances.

How the concept of East Asia came to be accepted: towards the ASEAN+3 Although not even the ASEAN countries shared a common interest in the EAEC or took any significant steps towards giving substance to the concept, they at least paid respect to the Malaysian prime minister’s proposal to maintain solidarity among members and did not attempt to destroy the idea. Rather, they employed a discreet and gradual approach towards the formation of an East Asian regional concept by inviting leaders from China, Japan and Korea to unofficial discussions. During the 27th ASEAN Ministerial Meeting (AMM) in Bangkok in July 1994, ASEAN foreign ministers met with the foreign ministers of China, Japan and Korea at the so-called informal ‘6+3’ lunch and ‘discussed aspects of EAEC’,4 the first ministerial encounter combining Northeast and Southeast Asia, that is, ‘East Asia’. The 1996 AMM in Jakarta reached an agreement that henceforth the meetings of the ASEAN 7 plus China, Japan and Korea would be included in the programme of all ASEAN Ministerial Meetings (personal interview with Siazon). The informal lunches and the unofficial gatherings at the ministerial meetings helped ASEAN and the ministers and officials of the three Northeast Asian states to establish mutual institutional connections, creating an atmosphere conducive to an open and frank discussion of regional issues. This discreet but ongoing process by which the ministers became accustomed to dealing with each other helped to generate a growing consciousness of a shared East Asian identity, which in turn laid the basis for the ASEAN+3 framework.


In addition, the foundation of the Asia Europe Meeting (ASEM) contributed to the creation of an East Asian regional identity. When the ASEM was prepared in 1995, there was an asymmetric situation wherein the Europeans had the EU, whose 15 member states were in the habit of consulting each other, but there was no group linking Northeast Asia and Southeast Asia. Consequently, at the APEC Osaka meetings in 1995, the Thai government hosted an informal lunch of the ‘ASEAN 6+3’ leaders to prepare for the first ASEM meeting in Bangkok the following year. Koh, who was involved in this work, said: ‘ASEM forced Northeast and Southeast Asians to meet and be consolidated into “Asian” side participants of ASEM, commencing to develop the habit of meetings that included China, Japan, Korea and Southeast Asia’ (personal interview). ASEM thus also contributed to laying the foundation for the East Asian concept. Goh Chok Tong’s proposal While the East Asian concept was becoming increasingly accepted, the Singaporean prime minister Goh Chok Tong suggested at the 1995 ASEAN summit that ASEAN members should invite the three Northeast countries to ASEAN’s informal summit meeting within 12 to 18 months. This was a milestone both because the Singaporean prime minister proposed it and because his proposal for an East Asian summit was concrete in terms of the participants, timing and organizational form.5 This proposal prepared the ground for regional countries’ subsequent receptive responses to the concept of East Asia that the EAEC project had launched. During the 29th AMM in Jakarta, in July 1996, the Malaysian foreign minister introduced a discussion paper on the EAEC recommending that ASEAN countries work towards a ‘7+3+3’ informal summit meeting in Indonesia in December 1996. This was almost the same proposal that Goh had made six months earlier – the only difference was to add three non-ASEAN Communist countries, Cambodia, Laos and Myanmar, all eager to join ASEAN, to the invitation list. Two days later, at the press conference of the ASEAN Post-Ministerial Conference (PMC), when asked about his views on Goh’s proposal, Japanese foreign minister Yukihiko Ikeda said: Japan would like to leave it to ASEAN countries to decide whether the grouping wants to invite the Japanese Prime Minister to the informal summit . . . Since we are expanding and deepening our relations with ASEAN . . . and if there is a concrete proposal from ASEAN, we would like to respond positively. (Star 1996) This was the first Japanese ministerial statement that responded positively to a proposal embodying a concept of East Asia. It came as a surprise to

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many ASEAN leaders. Indonesian foreign minister Ali Alatas commented: ‘Who would have thought that Japan would respond positively now after having rejected the idea for four years’. The Filipino foreign minister Siazon said: ‘ASEAN did not expect such a change of stance’, describing Japan’s position ‘as a positive development that ASEAN would pursue’ (Star 1996). It had partly been Japan’s lukewarm attitudes to the EAEC that had stymied the initiative; so the positive Japanese remarks on the Goh proposal made the prospects for a summit meeting among East Asian countries look bright. Yet Goh’s and Malaysia’s proposals did not lead to a pan-East Asian summit meeting when the ASEAN leaders held their first informal summit in Jakarta in 1996. This was partly because this summit was only a oneday event and there was not enough time to accommodate a meeting with the three Northeast Asian countries. Also, given that ASEAN employs a consensus-based decision-making system, it is possible that an East Asian summit did not come about because some ASEAN members disagreed with the proposal. For instance, the Indonesian foreign minister Alatas said at the ASEAN PMC in July 1996 that ‘We have no precedent to go by, as this is the first informal summit. We are thinking of keeping it to the ASEAN members and the three Southeast Asian prospective ASEAN members for the time being’ (Star 1996). Also, since the following Kuala Lumpur meeting was to mark the thirtieth anniversary of the establishment of ASEAN, this might have been considered to be a more appropriate occasion for inviting non-members. As a result, as Malaysian foreign minister Abdullah Ahmad Badawi said at the same conference, ‘If [the invitation] does not work out this time, Malaysia can always invite the three to the informal summit in Kuala Lumpur next year’ (Star 1996). In sum, the ASEAN+3 meetings arose from the gradual formation of the East Asian concept and the gradually growing awareness of a shared identity among East Asian countries. Initial awareness of a collective identity of East Asia among the regional countries was inspired by Mahathir’s EAEC, and people grew accustomed to the East Asian concept through the informal lunches at ASEAN’s ministerial meetings, the establishment of ASEM and Goh’s proposal, which was followed by a similar approach by Malaysia. The gradual character of this process was related to the fact that some countries in the region were reluctant to commit themselves to cooperation in East Asia. In fact, the ASEAN+3 forums began in quite a low-key way. No joint statement was issued by the first ASEAN+3 informal summit meeting held in Kuala Lumpur in 1997 – instead separate statements were made by ASEAN and each of the Northeast Asian leaders. Moreover, the term ‘ASEAN+3’ was used only rarely and cautiously at the first two meetings, much less in the agenda for the meeting. It was only after the ASEAN+3 meeting of finance ministers in Hanoi in March 1999 that the term ‘ASEAN+3’ came to be widely used. A ‘Joint Statement on East Asia Cooperation’ was issued for the first time by the


13 heads of governments at the third informal summit meeting in Manila in 1999 (Look Japan 2000). The following section asks what factors, as centripetal forces, persuaded the regional countries to form this regional framework.

Centripetal forces: the Asian financial crisis and the development of other regionalisms Stressing the significance of transnational identities in international relations, Cronin (1999: 33) argues that ‘Group identities develop out of common experiences; political actors must act together as a group before they can recognize the existence of that group’ (italics in original). The Asian financial crisis, an important event that East Asian countries commonly experienced, helped those countries to realize the desirability of pursuing regional approaches to certain issues – in other words, of consolidating an East Asian regional identity to promote mutual cooperation. Siazon said that ‘One has to recognize that ASEAN+3 is logical because of a shared experience and a recognition of the inter-linkages during the financial crisis’ (personal interview). This recognition had also partly to do with the fact that the United States had given the region the impression that it was not very interested in the Asian financial crisis – a perception that may have fostered the idea that America’s commitment to the region was declining.6 The Singaporean senior minister Lee Kuan Yew regarded the fact that the United States stayed away from the rescue package for Thailand as ‘a very grave mistake’ because it sent the wrong signal to the region, a signal namely that ‘the United States did not consider this a crucial matter’ (Nihon Keizai Shimbun-sha 2000: 82). Lee added that the United States became involved in the case of Indonesia ‘reluctantly’, making a relatively small contribution. ‘I think it sent the wrong message’.7 When it came to setting up a concrete regional institution designed to tackle financial crises, the United States also combated the project, as it had done the EAEC. An Asian Monetary Fund (AMF) was proposed in September 1997 by Japan’s vice-finance minister, Sakakibara, as an Asian financing facility with an initial capitalization of $100 billion. America and the IMF both staunchly opposed it. The United States viewed it as likely to erode the significance of the US-dominated IMF, another indication that the United States was hostile to the creation of any regional grouping that would exclude it. Sensitive to the view of the United States and the IMF, Japan and other Asian countries, despite initial enthusiasm, began to heed the warnings from the United States and IMF officials. Asian leaders began to ‘make speeches lauding the importance of the IMF. It quickly became clear that there was little appetite in Asia for a confrontation with the United States and the IMF amidst plummeting currencies and stock markets’ (Altbach 1997: 10), as was evidenced by Singapore, which turned down the AMF plan as ‘not practical’ (Straits Times 2000).8

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One reason why it was difficult to garner support from the region is that these countries wanted the United States to remain committed to the region in terms of both economic links and security. Also, Japan’s substantial total contributions of $44 billion to rescuing Thailand, Indonesia and South Korea – the countries worst hit by the financial crisis – were in sharp contrast with those of the United States, which, regional countries considered, had lost interest in the region. Lee Kuan Yew noted that ‘I believe South Korea and Southeast Asia are very alive to the help the Japanese government has extended’ (Nihon Keizai Shimbun-sha 2000: 86). America’s image was tarnished by the perception that it was not committed to rescuing the region. This in turn consolidated Japan’s image as a regional leader, strengthening its ties with the region and helping to foster a sense of regional solidarity in East Asia. Lee continued: There have been developments showing that neither Europe nor America has the same level of interest in the rapid recovery or the wellbeing of the Asian countries that have been hit as much as Japan or even China does . . . You see that we have more interest in each other’s wellbeings than do Europeans or even Americans. (Nihon Keizai Shimbun-sha 2000: 85) China’s pledge not to devalue the renminbi during the financial crisis was also hailed by regional countries. With this policy, China, which had hitherto been thought to be going its own way rather than contributing to regional cooperation, also promoted the emergence of an East Asian identity. The crisis proved that Northeast Asia and ASEAN were deeply interconnected. The fact that the financial crisis in Thailand, which appeared at first to be isolated, soon spread to other Southeast Asian countries, such as Indonesia, and then to South Korea highlighted a negative aspect of interdependence. Japan’s economy was also regarded as having been strongly affected. For instance, the Organization of Economic Cooperation and Development (OECD 1998) predicted that the Asian crisis would cause Japan’s real GNP to fall 1.3 per cent in 1998 and 0.7 per cent in 1999, with a reduction in the Japanese current account balance of US$12 billion in 1998. The Thai foreign minister Pitsuwan said: ‘The leaders of China, Japan and South Korea are coming with a stronger awareness than last year that we need each other. This is because, over the past two and a half years, the economic crisis has made them aware of our mutual dependence’ (Straits Times 1998). Siazon also noted that: the regional economic and financial crisis provided the impetus for the East Asian leaders to institutionalize the ASEAN+3 Summit, [because] what happened in China, Japan, and Korea had an impact


on ASEAN [and] developments in ASEAN either slowed down or accelerated the recovery of Northeast Asian countries. As a consequence, the Chiang Mai Initiative was agreed at the ministerial meeting of the ASEAN+3 nations there in May 2000, not only extending the scope of the currency swap agreement of the original five ASEAN members to all the members, but also establishing a network of bilateral swap agreements linking individual ASEAN members, Japan, China and South Korea. As a shared experience among the potential members of the ASEAN+3 forums, the Asian financial crisis made regional countries more strongly aware of their interdependence and that they were part of the same region, helped to demarcate this region’s boundaries and fostered an East Asian regional identity as well as a perception that greater East Asian monetary cooperation was necessary. Other regional developments The development of regionalism in other places also helped an East Asian identity to grow and contributed to a mood of cooperation among regional countries. The US project that the whole of the Western Hemisphere, including 34 states in North, Central and South America and the Caribbean, should form a free trade zone was backed by these states at a summit meeting at Santiago in April 1998. The Europeans were determined to extend the EU into the post-Communist states in Central and Eastern Europe. These regional developments in American and Europe undoubtedly underscored the need for East Asian countries to become more cohesive and more united. Koh (personal interview) said: ‘the Americans surely cannot complain about East Asia becoming closer when they themselves are doing the same thing in their hemisphere and the Europeans cannot complain because they are the pioneers of European regionalism’. Even though South Korea had kept its distance from the proposed grouping, the South Korean president Kim Dae Jung also argued that ASEAN+3 meetings: would also be able to speak for the region in discussions with other major economic blocs, such as the European Union and the North American Free Trade Agreement. Why should Asia, alone among the ‘three poles’ of the global economy, not have its own grouping?9 (Asiaweek 1999: 10) This sort of reaction was also fostered within the APEC process in which the East Asian members have championed economic development issues, while the United States and Australia focused on the issue of trade liberalization. According to Webber (2001: 357), the creation of ‘an at

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least limited sense of identity among East Asian states’ can be attributed to ‘the perception of sharing a common opponent in APEC conflicts’. ‘Both individual and institutional actors continually compare themselves to others . . . in part to better define who they are and . . . who they are not’ (Cronin 1997: 25). Emerging wider and deeper regionalism elsewhere, such as in the Americas and Europe, as well as growing divergences within APEC led to a rise in regional consciousness in East Asia. This trend helped to clarify the issue of which states belonged to East Asia, to align regional leaders’ approaches to regional issues and subsequently to provide momentum to the process of creating similar regional institutions in East Asia to those in Europe and the Americas. Northeast Asia’s growing interest in an East Asian concept Given Japan’s initial hesitancy regarding the EAEC project, the country’s participation in the 1997 ASEAN+3 meeting was a milestone for East Asian regionalism. Until 1999, however, ASEAN was not sure if Japan would fully support ASEAN+3 because Japan had concentrated on Japan–ASEAN bilateral relations, as seen in a proposal for an annual Japan–ASEAN summit meeting launched by prime minister Hashimoto in 1997. However, since 1999, Japan’s Ministry of Foreign Affairs has used the term East Asia and described the ASEAN+3 meetings as ‘an East Asian summit in a practical sense’ (Terada 2001). According to Koh (personal interview), ‘in Manila, Japan made its position clear and supported ASEAN+3’. At the 1999 ASEAN+3 summit meeting, prime minister Obuchi (1999) announced a Plan for Enhancing Human Resources Development and Human Resources Exchanges in East Asia, which the Philippines president Estrada renamed the ‘Obuchi Plan’ to demonstrate the ASEAN countries’ appreciation. Prime minister Mori (2000) made a statement on three principles for enhancing open regional cooperation in East Asia, demonstrating Japan’s political interest in ASAEN+3. His successor Koizumi (2002) similarly suggested making ‘the best use of’ ASEAN+3 ‘to secure prosperity and stability’ in East Asia in his Singapore speech in January 2002. In contrast with Hashimoto (1997), who urged the need for closer ASEAN–Japan relations in the interests of stability and prosperity in the ‘Asia Pacific’ region, the regional policy statements and initiatives launched by his successors illustrate Japan’s growing interest in East Asia. Japan’s role in launching these policy initiatives within the ASEAN+3 framework is in sharp contrast with its earlier lukewarm attitude to the EAEC. The fact that the United States did not so demonstrably oppose the ASEAN+3 process, unlike the EAEC, was an important factor in Japan’s changing approach to East Asian regionalism. The US’s less hostile attitude to the ASEAN+3 made Japan feel less constrained about participating in the process. Makio Miyagawa, director of the Regional


Cooperation Division in the Japanese Ministry of Foreign Affairs (MOFA) (personal interview, Tokyo, 6 July 2002) stressed America’s growing understanding of the need for Japan to provide the initiative to promote stability and prosperity in East Asia. The existence of APEC, of which the United States is a member, has helped Japan to develop its interest in ASEAN+3, since East Asian nations are able simultaneously to maintain trade and investment dialogues with the United States through APEC. Hidehiko Yokoo, a senior official of the Japanese Ministry of Economy, Trade and Industry (METI) (personal interview, Singapore, 12 December 2000) confirms that ‘We feel less constrained about our involvement in the ASEAN+3 meetings because of APEC’. Japan’s increasingly positive attitude towards East Asian regionalism stemmed partly from its political interests in ASEAN+3. These interests are especially related to China and South Korea, with which Japan has not so far developed policy dialogues, despite the countries’ geographical proximity. At the 1999 ASEAN+3 informal summit meeting in Manila, prime minister Obuchi announced two proposals: first, to hold a trilateral leaders’ dialogue among Japan, China and South Korea before the ASEAN+3 meeting and, second, to hold an ASEAN+3 foreign ministers’ meeting to ensure the steady implementation of the Joint Statement. His proposals led to the staging of a trilateral Northeast Asian leaders-level dialogue for the first time in the form of a breakfast meeting – a meeting that was subsequently upgraded to a regular annual summit – and to the inauguration of the ASEAN+3 foreign ministers’ meeting at the ASEAN PMC in Bangkok in July 2000. The former proposal was especially significant to Japan, as Japan has not forged good relations with these two geographically closest neighbouring countries due to historical problems. Their shared identity as East Asian nations, reinforced through their involvement in the ASEAN+3 process, helps them to discuss policy issues and to cooperate trilaterally. An example was at the second informal leaders’ meeting, when China initiated regular consultations among the deputy finance ministers and deputy central bank heads of East Asian countries to promote financial cooperation. South Korea further advanced the process of East Asian partnership by establishing an East Asia Vision Group to chart a long-term and comprehensive programme for economic cooperation in East Asia. Japan’s growing support for the ASEAN+3 meetings has been paralleled by that of China and Korea and all three Northeast Asian countries’ push for the ASEAN+3 meetings has become another major factor behind the development of this regional institution, consolidating an East Asian identity.

Towards ‘East Asian’ regionalism As argued earlier, the ASEAN+3 meetings were launched in a very discreet fashion and the interest of East – especially Northeast – Asian leaders in nurturing this regional institution has grown gradually. At the Kuala

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Lumpur meeting in 1997, no decision was made about whether an ASEAN+3 leaders’ meeting would be convened in 1998. Prime minister Mahathir merely proposed that the ASEAN+3 leaders meet in 1998 and decide then whether they should meet the following year. Since there was no consensus on the issue, Mahathir proposed to leave it to the respective participants to consider convening an ASEAN+3 meeting in 1998. When the ASEAN+3 summit took place in 1998, a consensus was reached that ASEAN+3 summit meetings would be convened annually back-toback with ASEAN formal or informal summits. The leaders also resolved that the ASEAN+3 meeting should not be formalized and that the process should be pursued at various levels (personal interview with Siazon). Given this opposition to a formalization of East Asian cooperation, a fully fledged East Asian organization in which member countries participate on an equal footing has not yet emerged. As long as the name ASEAN+3 remains, it will designate the current form of regionalism as ASEAN-sponsored, indicating that all member states do not fully accept an East Asian concept. Two major cooperation plans are under discussion: an East Asian FTA and an East Asian summit, as recommended by the East Asian Vision Group. Together, these projects imply a closer and more ambitious political connection of ASEAN and Northeast Asia, enabling East Asian leaders to develop common positions more easily and to articulate them more effectively in multilateral forums such as the WTO (World Trade Organization) and the UN (United Nations). In these arenas, the self–other distinction could be developed between East Asian and non-East Asian groups and a shared East Asian identity among members eventually grow stronger, especially if it also helped to mobilize the region more effectively and enable it to coordinate policies and respond more quickly to new common economic problems. The creation of an East Asian FTA seems to require strong leadership and clear awareness of potential shared interests among regional countries. The countries with the region’s two biggest economies, Japan and China, are challenging each other for the leadership position in East Asia by activating bilateral FTA projects. Japan’s interest in an FTA with South Korea, announced in October 1998, is believed to have spurred China’s interest in forging similar agreements (personal interview with Katsuhiko Umehara, Director for Regional Cooperation, METI, Tokyo, 11 April 2002). The steps undertaken by Japan and South Korea led China to feel isolated in the FTA movement in East Asia. China ultimately joined it by proposing an FTA with ASEAN in October 2000 – a project that the two sides officially agreed in November 2001. Koizumi’s Singapore speech and the agreement to work towards a Japan–ASEAN economic partnership were in turn a response to the China–ASEAN FTA proposal, which has been regarded as a means of developing an economic alliance and paving the way for Chinese leadership in the region, notwithstanding the extensive relations that Japan has developed with ASEAN countries in terms of


investment, aid and trade. A Japanese METI official who oversees relations with China said ‘in the past, it did not matter if Japan was a laggard in diplomacy. But with China’s economic rise and more active diplomacy, leadership in the region will pass to China if Japan continues taking a standoffish stance’ (Straits Times 2002a). As a guideline for Japan’s FTA strategy published by the MOFA in October 2002 stresses, Japan aims to use FTAs ‘to improve relations with its partners and beef up its diplomatic influence’ (Yomiuri Shimbun 2002). This means that, along with China, Japan, which had already signed an FTA with Singapore in January 2002, has become a linchpin in the FTA movement in East Asia. According to Umehara (personal interview), the Japan–Singapore FTA put pressure on Malaysia and Indonesia, believed to be the countries least enthusiastic about bilateral FTAs in the region, to study the pros and cons of such agreements. China’s and Japan’s FTA approaches to ASEAN also contributed to the development of South Korea’s interest in pursuing the same path, as South Korea and ASEAN agreed to complete an FTA by 2009 at the 2004 ASEAN economic ministers’ meeting in Jakarta. The 2003 ASEAN+3 meeting in Bali witnessed a number of statements and speeches that stressed the desirability of East Asian cooperation including an FTA (Terada 2004). This growing chain of FTAs in East Asia may point to the ultimate establishment of an East Asian FTA, reflecting a building block approach foreshadowed in the report of the East Asian Study Group (2002: 34). Yet not all ASEAN members regard an East Asian FTA as a ‘useful purpose’, partly because the three Northeast Asian economies account for nearly 90 per cent of the East Asian economy and ASEAN might therefore be marginalized within the FTA, a fear that the former Singaporean trade minister George Yeo understands (Business Times 2002). The diverse levels of economic development within ASEAN, including variations in industrial structure, infrastructure, human resources and levels of privatization, constitute a major barrier to the implementation of an East Asian FTA. Participation in FTAs at a premature stage of development, as in the case of Indo-Chinese nations, may result in insufficient privatization and hamper the development of an efficient private sector (Ohno 2000: 152). Given the economic diversity of the ASEAN countries, some in Japan argue that the only ‘realistic’ partners for FTAs with Japan would be ASEAN’s relatively developed members ( Japan Times 2002). China and Japan understand the ASEAN states’ apprehensiveness that they might dominate an East Asian regional organization, and both have worked to alleviate these concerns. For instance, China agreed to open up its sensitive agricultural markets – including timber, palm oil and tropical fruits, all key export products of Malaysia and Indonesia, the countries that were supposed to be less keen about the FTA with China – to ASEAN (Kuroda 2002: 64). Furthermore, in order to encourage the Indo-Chinese

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states, China signed a pact with Laos to construct a modern highway and trade route into Yunnan Province, as far as Kunming, by 2006.10 China also agreed to grant preferential tariff treatment for products from Cambodia, Myanmar and Laos and offered to write off Cambodia’s old debts to China. China’s ability to liberalize its agricultural markets gives it an advantage over Japan. The presence in Japan of a politically powerful agricultural sector strongly opposed to opening Japanese agricultural markets, especially the rice sector, is a major reason behind the slow progress towards the establishment of FTAs between Japan and other East Asian countries. Japan has identified East Asia as a ‘priority area’ for its Official Development Assistance (ODA) and pledged its continuous ODA commitment to the region, despite stringent budget conditions (Straits Times 2002b). It also convened the Initiative for Development in East Asia (IDEA) ministerial meeting in Tokyo in August 2002 to review East Asia’s development experiences utilizing ODA, to share expertise and lessons, and to exchange views concerning the region’s future economic development (MOFA 2002). In Phnom Penh in 2003, foreign minister Kawaguchi (2003) also launched an Initiative for Reinforcing ASEAN Integration, aimed at enhancing cooperation with the four new ASEAN member states to ‘help them narrow economic gaps with other members through a free and market-oriented economy’. Economic development and technical cooperation are areas where Japan can exploit its relative strength compared with China, which cannot yet match Japan in terms of experience, knowledge and the availability of capital. At a time when FTA talks have become so fashionable and drawn so much attention in the region, China’s rise as an economic power and its aggressive FTA approach to ASEAN have certainly encouraged Japan to highlight these issues. The FTA talks tend to sideline the interests of ASEAN’s developing members, but competition between Japan and China over FTAs in Southeast Asia requires these two countries to take the concerns of ASEAN’s poorer member states into consideration. Thus, this competition can be regarded as a positive force for an East Asian FTA. China’s special offer to liberalize its agricultural market and Japan’s strong interest in promoting development cooperation both help to create better conditions for attaining an East Asian FTA by promoting economic growth in the region’s poorest countries. It remains an open question, however, whether Japan and China share the same ultimate goal concerning East Asian integration and acknowledge that they can make complementary contributions towards it (Terada 2002). The fact that Japan’s long-term objective is the creation of an East Asian FTA, as its first FTA guidelines announced in October 2002 clearly indicate, means that Japan does not exclude the possibility of an FTA with China (MOFA 2002). Ex-premier Zhu’s proposal for an FTA among China, Korea and Japan in November


2002 also illustrates China’s willingness to forge an FTA with Japan. Equally, these developments indicate that Japanese and Chinese FTAs with ASEAN may eventually be consolidated into an East Asian FTA. In this process, Japan and China could cooperate with each other.

Conclusion This chapter stressed that to establish East Asian regionalism initially required the emergence and acceptance of a concept of East Asia, a process that involves defining the boundary to distinguish between ‘us’ and ‘them’, that is, members and non-members of an institution. When the EAEC was advocated in the early 1990s, the movement was not able to garner strong support from regional countries, partly because many of them did not share this regional concept. Gradual acceptance of the East Asian concept was subsequently achieved through the promotion of a shared understanding of regional settings and the articulation of a common view of regional problems, a process facilitated by personal acquaintances among leaders. Although Malaysia’s EAEC concept was not realized as it was initially planned, it contributed to the establishment of the ASEAN+3 meetings by launching the concept of East Asia – without which the ASEAN+3 framework connecting Northeast Asia with Southeast Asia would not have been as well accepted by countries in the region. A Filipino senior official said that ‘any form of East Asian cooperation, be it a Summit, or an ASEAN+3 Foreign Ministers’ Meeting, arose out of the initial idea of EAEC that ASEAN should pursue cooperation with its East Asian neighbours’ (personal correspondence, 3 March 2001). The 1997 establishment and subsequent development of the ASEAN+3 were promoted by the Asian financial crisis (common experience) and the expanding regionalism in Europe and the Americas (common ‘others’). These created centripetal forces and contributed to the East Asian concept being shared by the member countries more strongly, culminating in the consolidation of East Asian cooperation, the inauguration of the ASEAN+3 meetings in 1997 and the launching of key policy initiatives, such as currency swap arrangements. There are, however, some doubts about how far East Asian regionalism of the ASEAN+3 kind can go, in view of the cultural diversity in the region. Robert Scalapino, for instance, comments: ‘the diversities within Asia far exceed the commonalities . . . Asia has nowhere near the cultural affinities of Western Europe’ (Nihon Keizai Shimbun-sha 2000: 84). However, the very habit of cooperating can be conducive to strengthening shared beliefs, to obtaining consensus and promoting cooperation, and to sustaining the solidarity necessary for increasing the understanding of cultural and social differences among members in a regional institution. The regional institution can provide occasions where political leaders and government officials strengthen their

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commitment to cooperation by exchanging policy information, regardless of cultural differences. In fact, regional cooperation on the ASEAN+3 basis is now extending to such areas as an emergency communication network among the energy ministers, the creation of East Asian rice reserve system, a framework action plan to prevent and control SARS (Severe Acute Respiratory Syndrome) and a new oil reserve system to prepare for possible petroleum shortages arising from instability in the Middle East. These developments encourage many regional leaders to push for greater East Asian regionalism. Koizumi’s support for the creation of a community in East Asia in his Singapore speech triggered other East Asian leaders, such as the then Singaporean prime minister Goh Chok Tong (2003), to follow Japan’s initiative, partly because Japan, which was not committed to the EAEC, has now become one of the most enthusiastic supporters of East Asian regionalism and shown its readiness to lead its creation. A major impediment to the creation of an East Asian regionalism is the ASEAN states’ fear – discussed earlier in relation to an East Asian FTA – that they may be marginalized in such an organization. Japan’s and China’s approaches to ASEAN are aimed at promoting awareness of the importance of ASEAN’s working together with them. Some ASEAN leaders, such as Singapore’s former prime minister Goh and Thailand’s prime minister Thaksin, understand that by itself ASEAN will find it difficult to respond to possible stronger economic regionalism in Europe and the Americas. They thus tend to stress the need for the formation of a common market with the three Northeast Asian countries to make Southeast Asia a more attractive investment location. Japan’s and China’s interest in creating a region-wide FTA in East Asia would necessitate ASEAN’s further integration as a confident equal partner.

Notes 1 This chapter is a revised and updated version of Terada (2003). 2 Personal interview, 13 October 2000. All subsequent references to Siazon in this article are taken from interviews with the author, unless otherwise indicated. 3 For instance, an editorial of the Straits Times (1997) called the first ASEAN+3 meeting in Kuala Lumpur an ‘ASEAN–East Asia Summit’, indicating a meeting between Southeast and Northeast Asian countries. 4 See www.asean.sec.org/9384.htm. 5 The ASEAN informal summits, instituted by a decision of the 5th ASEAN Summit in Bangkok in 1995, are informal, regular meetings held every year between the formal summits, which are held every three years. 6 In his visit to Australia in July 1998, US defence secretary William Cohen admitted ‘the American people have not fully appreciated the depth and significance of the Asian crisis’ (The Australian 1998). 7 New Zealand prime minister Helen Clark also stated: ‘There are terribly bitter feelings in Asia from the US response to the Asian economic crisis . . . What they saw was when Russia and Brazil had their crises, they [the Americans] rushed in, and they didn’t do that for Asia, and yet these countries in Asia had been, they [the Asians] considered, very loyal friends’ (cited in Webber 2001: 355).


8 However, the AMF was to be positively assessed later. The East Asian Study Group (2002: 38) argued, for example, that ‘the IMF cannot fully provide enough funding for affected countries during a crisis as severe as the Asian Financial Crisis of 1997. Therefore, it is necessary to have supplementary funding available on a permanent and assured basis’. 9 Goh Chok Tong supported this rationale when he hosted the 2000 ASEAN+3 meetings in Singapore: ‘[North American leaders] have NAFTA and they are going to extend NAFTA to South America. So I see no problem in ASEAN+3 . . . evolving, if there is a desire of the leaders, into some kind of an East Asian summit’ (Australian Financial Review 2000). 10 This would be the shortest overland route to China from Southeast Asia, making Yunnan province a potential market of 150 million people and the quickest link between ASEAN and China.

References Altbach, Eric (1997) ‘The Asian Monetary Fund: A Case Study of Japanese Regional Leadership’, JEI Report 47A, 19 December, 1–12. Asiaweek (1991) 25 January. Asiaweek (1999) 10 December. The Australian (1998) 31 July. Australian Financial Review (2000) 24 November. Bergsten, Fred (2000) ‘Towards a Tripartite World’, The Economist, 13 July. Business Times (2002) 15 September. Cronin, Bruce (1999) Community under Anarchy: Transnational Identity and the Evolution of Cooperation, New York: Columbia University Press. East Asian Study Group (2002) Final Report. Goh Chok Tong (2003) ‘Challenges for Asia’, speech delivered at the Research Institute of Economy, Trade and Industry, Tokyo, 28 March. Hashimoto Ryutaro (1997) ‘Reforms for the New Era of Japan and ASEAN: For a Broader and Deeper Partnership’, speech delivered in Singapore, 14 January. Hellmann, Donald (1972) Japan and East Asia: The New International Order, New York: Praeger. Japan Times (2002) 4 May. Joint Statement on East Asia Cooperation at the 3rd ASEAN+3 Informal Summit, Manila, 28 November 1999. Kawaguchi Yoriko (2003) ‘Building Bridges toward Our Future: Initiative for Reinforcing ASEAN Integration’, speech delivered at Phnom Penh, 17 June. Koizumi Jun-ichiro (2002) ‘Japan and ASEAN in East Asia: A Sincere and Open Partnership’, speech delivered in Singapore, 14 January. Kuroda, Atsuo (2002) ‘Chugoku kyouiron-mo, Chugoku houkairon-mo yamarida’, [Neither does China threaten us nor will it collapse] Chûô Kôron, February 2002: 8–67. Look Japan (2000) ‘Money Talks: A review of proceedings at the 2nd ASEAN+3 Finance Minister Meeting’, November: 18–19. MOFA (Ministry of Foreign Affairs), Japan (2002) Wagakuni-no FTA Senryaku [Our Country’s FTA Strategy], Tokyo: MOFA. Mori, Yoshiro (2000) Press Statement, Singapore, 25 November. Nihon Keizai Shimbun-sha (ed.) (2000) Ajia: Aratanaru Rentai [The Future of Asia: A New Partnership], Tokyo: Nihon Keizai Shimbun-sha.

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Obuchi, Keizo (1999) Press Statement, Manila, 28 November. OECD (Organization for Economic Cooperation and Development) (1998) World Economic Outlook, 63, June. Ohno, Kenichi (2000) ‘Tojyokoku-no Globalisation’ [Globalisation for Developing Economies], Tokyo: Toyo Keizai Shinpou-Sha. Star (1996) 1 September. Straits Times (1997) 19 December. Straits Times (1998) 16 December. Straits Times (2000) 3 March. Straits Times (2002a) 10 May. Straits Times (2002b) 13 August. Terada, Takashi (2001) ‘ASEAN+3-no Kanousei-wo Saguru: Higashi Ajia Chiikishugi-no Seiritsu-ni Mukete’ [Possibility of ASEAN+3 – Towards the Establishment of East Asian Regionalism] Gaiko Forum, 156, July: 62–67. –––– (2002) ‘Keizai Kyoshitsu: Higashi Ajia Tougou-he Nittchu Kyoryoku’ [ Japan–China Cooperation towards East Asian Integration], Nihon Keizai Shimbun, 18 February. –––– (2003) ‘Constructing an East Asian Concept and Growing Regional Identity’, Pacific Review, 16:2: 251–277. –––– (2004) ‘Creating an East Asian Regionalism: Institutionalization of ASEAN+3 and China–Japan Directional Leadership’, The Japanese Economy, 32:2: 64–85. Webber, Douglas (2001) ‘Two Funerals and A Wedding? The Ups and Downs of Regionalism in East Asia and Asia–Pacific after the Asian Crisis’, Pacific Review, 14:3: 339–372. Wendt, Alexander (1994) ‘Collective Identity Formation and the International States’, American Political Science Review, 88: 384–396. Yomiuri Shimbun (2002) 13 October.

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Part VI

Security and regional crisis management

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13 The elusive quest for a European security and defence policy From crisis management to security strategy Jean-Yves Haine1 The year 2003 was an annus horribilis for the European Union. The display of deep divisions about the war in Iraq, the abandonment of the stability pact, the failure of the IGC (intergovernmental conference) and the high level of mistrust and acrimony throughout the year contributed to a serious crisis of the European integration process which culminated in 2005 with the French and Dutch rejection of the Constitutional Treaty. Yet the European Security and Defence Policy (ESDP) actually achieved some important progress. The Union at last finalized the Berlin Plus agreement with NATO, it adopted a security strategy for the first time in its 50-yearlong history, a crucial consensus was reached about a solidarity clause among EU members and the creation of an Agency for European Capabilities and Armaments was agreed. As well the establishment of a civilmilitary planning cell in Brussels, the possibility of deepened cooperation to enhance the military effectiveness of member states and new initiatives in anti-terrorism policies were all decided. Moreover, the Union successfully conducted several peace-keeping and peace-enforcing operations, not only in the Balkans where European soldiers and policemen contribute to stabilizing the region but also in Africa, where, for the first time, the Union acted autonomously by intervening in the Democratic Republic of Congo. The process of building a genuine security and defence policy for the EU had been protracted, arduous and frustrating. Despite significant progress, the quest for ESDP remains elusive. Several factors explain the difficulty of this endeavour. The first factor is linked to the specificity of the European integration process. The EU embodied a uniquely successful endeavour to overcome rivalries, disputes and wars among its members. With the obsolescence of force as an instrument for resolving disputes, security has become based on transparency, mutual openness, interdependency and mutual vulnerability (Cooper 2003). This half-century evolution has resulted in a ‘post-modern’ system where a genuine democratic peace was built, an institutional order was progressively constructed and an increasingly ‘amalgamated security community’ has emerged.2

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Essentially, however, the fields of cooperation and integration were civilian by nature, from the common market and agriculture policies to the recent adoption of the euro. Defence and security policies, although part of the original project in 1954, were left untouched by the integration process. It was not until 1991 that foreign affairs were incorporated, although on a strictly intergovernmental basis, in the realm of the Union. This leads to the second major reason why the security dimension of the Union was disregarded for several decades. The cold war in Europe caught Western Europe in the middle of two superpowers, the United States and the Soviet Union. Since 1949, Washington, in a dramatic departure from its traditional policy of non-entanglement, has extended its security guarantee to Western Europe with a paradoxical result. On one hand, the American security and nuclear umbrella allowed for the integration process of Europe that began in the 1950s; on the other, this very protection meant that, ultimately, Europe was not responsible for its own defence. Despite recurrent debates about burden sharing, extended deterrence and flexible response, the NATO monopoly and European dependency remained essentially untouched until the end of the East-West divide. The sudden collapse of the Soviet empire left a double legacy that was particularly difficult to handle. For the former Communist countries of Central Europe, the transition to a market economy after 50 years of Communism was in many ways an historic challenge. The prospect of EU membership was a catalyst for drastic reforms and painful changes. With the official entry of ten new members from Eastern Europe in May 2004, the unification of the European continent is now a reality. For the West, the cold war legacies were, of course, less challenging but more complex. After the fall of the Berlin Wall, a unified Germany had to incorporate 17 million new citizens, putting huge strains on its economy and, consequently, on the rest of Europe as well. Moreover, the monetary union, with its strict financial criteria, did not favour growth-oriented policies. In this context, defence budgets were drastically cut, responding to the peace dividends requested by a majority of citizens across Western Europe. Military capabilities were shaped according to the imperatives of territorial defence. With the fall of the Berlin Wall, this organization became obsolete. Yet the transformation of continental European forces did not take place as it did in the United States and in the United Kingdom. Based largely on conscripts, armies in Western Europe were built on collective defence, but not on collective security. Addressing these inadequacies was not on the Union agenda at the beginning of the 1990s. The last factor that partially explains the slow process of building a security and defence policy for the EU is related to ‘obstinate’ state sovereignty in foreign and defence policies.3 Precisely because the European integration process has already diminished a considerable amount of the attributes of the classical Westphalian state system and because the EU is a post-modern construction where the communautaire level is increasingly

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the only one that matters in an age of globalization, states remain reluctant to share what they see as their last national prerogative, i.e. foreign and defence policies. This has at least two implications. First, for the near future there is no question of a genuine European army being built. The rule of the game in defence matters will remain cooperation, with very little integration. Yet real sovereignty consists of one’s ability to act. If the current trend of cutting defence budgets coupled with a dominant national framework persists, very few countries in Europe would be able to act. As we shall see, multinational integration, especially for the smaller states of the EU, is the only way to proceed. Second, the usual discrepancy between strategy and politics will remain the norm rather than the exception. Since 1950, every single debate about European defence has been seen through political lenses rather than military requirements. From the European Defence Community (EDC) defeat in 1954 to the Euro-missiles controversy in the 1980s, from the Saint-Malo agreement in December 1998 to the Tervueren initiative in April 2003, politics has always dominated the terms of the debate. Enhancing status, balancing power and preserving leadership are some of the usual elements that shape the security debate among the Union’s members. To the politics among European big players, one must immediately and inevitably add the transatlantic dimension. This double-edged process is a continuing source of mutual frustration and misplaced fears, whereby the position vis-à-vis the United States colours initiatives and attitudes throughout Europe, dividing it more often than uniting it. The gap between what is strategically necessary and politically achievable remains one of the most important obstacles to the building of a genuine security and defence policy in Europe. Ultimately, external events impose their own significance. The driving factor behind the EU’s security developments was the need to address the challenges that threaten the rationale and the credibility of the whole integration process. For each failure, there is a new ambition. After Bosnia and Kosovo came the first acknowledgment of EU military inadequacies and the launching of the Saint-Malo process; after Iraq came a new Security Strategy of the Union and a new activism in world affairs. Here lies the paradox but also the strength of this process: learning by doing may be a frustrating way of moving forward, but the progress that has been made since the late 1990s is nonetheless considerable. Two broad periods can thus be distinguished: first, the birth of a common crisis management capability after the Bosnian tragedy; second, its inclusion into a broad strategic framework after the crisis over Iraq.

Behind ESDP: the quest for responsibility The end of the cold war marked the victory of the Western alliance deterrence strategy over the East, but it also implied a redefinition of the American commitment to Europe. After 40 years of being an American

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protectorate, Europe’s emancipation was inevitable. The question was how to implement European responsibility without weakening the Atlantic partnership. The management of the German reunification gave the first answer to the crucial issue. The integration of the unified Germany within NATO, an option actively advocated by Washington and accepted, against all expectations, by Moscow made it possible not only to maintain cohesion between the Germans and Americans, but also to consolidate the NATO monopoly on European security issues. In a context that was both unexpected – the threat from the East had disappeared – and familiar – NATO still existed in the West – discussion of European security was still characterized by historically based divergences between major members of the Union, while at the same time the first moves towards a single currency were being made. This ambivalence was seen during the Maastricht summit. On the one hand, countries such as Britain, which were in favour of the Alliance’s primacy, were opposed to any transfer of competence in security matters to the EU, while acknowledging the need for greater coordination of foreign policy. On the other hand, France, reasserting its desire to strengthen its relationship with Germany, had suggested raising its military collaboration with Bonn to a European level. Setting up the Eurocorps was a first step in relaunching the idea of European defence, but from the outset it encountered major political difficulties.4 The remainder of Europe was divided along traditional lines, between ‘Atlanticists’ and ‘Europeanists’. If the Maastricht summit saw the birth of the second pillar of the EU, the CFSP, the defence aspect of this policy was postponed sine die.5 At the beginning of the 1990s, the European security landscape thus had a somewhat schizophrenic appearance. On the one hand, the Union as a political entity was taking its first steps on the international scene but without its own defence capability; on the other, NATO remained the essential security instrument in Europe, but now had a new political vocation vis-à-vis its former enemies in the East. These changed circumstances prevented the re-nationalization of defence instruments in Europe, safeguarded the essential part of the transatlantic relationship and preserved American influence in Europe, but it left unanswered several contradictions. On the European side, a European defence identity was somewhat at odds with the reduced budgets and peace dividend demanded by public opinion. Across the Atlantic, the end of the cold war called for a redefinition of America’s role in Europe and of Europe’s place in American strategy, which in turn involved a revision of NATO’s mission and partnership. The tragedy of Bosnia A precarious and implicit division of labour emerged between a European Union focused on economic integration and the Atlantic Alliance more engaged politically vis-à-vis Eastern Europe. The limitations of this hybrid


architecture became evident when tensions in the Balkans became violent. With the first military confrontation in Slovenia in July 1991, the Europeans, anxious to put their infant common foreign policy into practice, dispatched their ‘troika’ to negotiate a cease-fire. This diplomatic rapid reaction force, as it was called by the then Italian foreign minister de Michelis, was to demonstrate that the Balkans, unlike the Gulf, were Europe’s responsibility (Gow 1997: 48–50). The partly successful Carrington mission quickly handed the baton over to the UN’s envoy Cyrus Vance, who managed to arrange a cease-fire that was essential for the deployment of UN ‘blue helmet’ peacekeepers. However, their minimal and ambiguous mandate was patently inadequate so long as peace had not been re-established. It was impossible to keep a peace that did not exist or impose one without becoming involved in the conflict. This classic conundrum of collective security led to paralysis in international institutions, which restricted themselves to following the conflict without resolving it. The limits of international law in cases of civil war, the inadequacy of traditional peacekeeping instruments and the outbreak of real violence in Europe following 40 years of political but peaceful confrontation all contributed to the Europeans’ inability to judge the scale of the conflict. At this early stage of the conflict, military capabilities were not the problem. Europeans could have acted decisively to stop the killings. Rather, the crucial disagreement was to do with the appropriateness and the finality of a military intervention. In short, divisions were political. Germany, for historical reasons, was keen to recognize the sovereignty of Slovenia and Croatia, but at the same time it lacked the capacity to guarantee these new international frontiers. France, for its part, refused to acknowledge border change triggered by force, while Britain was reluctant to intervene in a conflict where no obvious strategic interests were at stake.6 Thus the lowest common denominator was reduced to the humanitarian management of the conflict. Washington’s support became a necessary condition for implementing a more interventionist policy and dealing with increasingly serious humanitarian emergencies. Yet America’s position on this was unambiguous. The break-up of Yugoslavia seemed to it senseless and irresponsible and the ethnic mix too complex for any intervention to be decisive. In the absence of clear strategic interests, Washington refused to become involved in the conflict (Zimmerman 1999: 215ff.). After all, ‘Europe’s hour’ had come. Whereas the Europeans were trying to work out a peace formula that could be implemented, Washington’s rhetoric encouraged the Bosnians to hope for a military intervention that the US was determined to avoid and that Europe declined as long as its forces risked becoming hostages. In the grey area between American ambivalence and European impotence, Slobodan Milosevic pursued his destructive programme with impunity, culminating in the killings of several thousand Bosnian Muslims at Srebrenica, the worst massacre in Europe since the Second World War.

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The lessons of the tragedy of Bosnia were harsh for the international community as a whole, but in particular for Europe, which best symbolized the contradictions thrown up by Bosnia. The first of these was one of ethics: faced with the return of barbarity to the European continent, the failure of the Europeans, who were present but remained passive, dealt a serious blow to the very essence of the European project based on democratic values that were flouted on its doorstep. As the European partners had failed to produce a common strategy, former Yugoslavia should have been seen as a sufficiently serious democratic and moral issue for them to set aside specific national interests, inhibitions and institutional shortcomings. The very credibility of the common European enterprise was affected, including in the outside world, particularly in the countries of Eastern Europe, which had only recently thrown off the yoke of Communism and were looking to their security once again.7 The first imperative for any European defence undertaking is to avoid such a massacre happening again in Europe. If the union is prepared to tolerate war crimes again, its very foundations will suffer lasting damage. The second lesson concerned the effective use of force. Here several factors should be stressed. The first of these is the evident inadequacy of defence institutions founded on a territorial defence system. Given the institutional handicaps and historical legacies that reduced the room for manoeuvre of certain member states, and going beyond the inertia produced by 40 years of deterrent confrontation, the requirement to be able to project lightly armed operational units contrasted with the fact that forces in Europe were tied to specific areas, their numbers in reality reflecting no more than their relative ineffectiveness. The definition by the Western European Union (WEU) of the ‘Petersberg tasks’ was a first reaction to the new strategic environment, but the reorganization of military forces to focus on force projection and the management of far-off crises, begun in June 1992 by the WEU and in December of the same year by NATO, was a slow business. The second factor is both specific – the need to have the means to carry out the peace-making and peacekeeping tasks codified at Petersberg – and also general – the requirement to acquire and develop a strategic culture and an organization that can anticipate events. Without a credible threat to use force, there could be no effective collective security. The Bosnian conflict marked the end of the illusion of a period of post-cold war peace that those responsible for defence in Europe had been over-eager to anticipate. Furthermore, the risks entailed in the new type of operation implied the professionalization of military forces, a gradual and costly process, still under way in a majority of European countries. The third lesson was in a sense paradoxical. The reappearance of war in Europe demonstrated the gap between the reality of the effective power of a few large European countries and the EU’s decision-making framework. The security risks resulting from the disintegration of Yugoslavia


were not strategic. Whereas European security had been a matter of necessity during the cold war, it was now a matter of voluntary choice. Taking account of that reality was to become a necessary condition for any common European defence policy, but at the same time this reality set the policy’s limits. What is more, the ultimate decision to use armed force and acceptance of the attendant risks is basically a national prerogative. In time of crises, international institutions matter less, sovereign power more. This renewed importance of national sovereignty marked the limits of the institutional changes ratified at Maastricht (see Gordon 1997/98 and Zelikow 1996). At the same time, no individual member state could hope to deal alone with this type of conflict: it called for a collective response. Efforts therefore had to be directed at cooperation on foreign policy while taking national prerogatives into account. The final lesson concerned the transatlantic relationship. The conflict in Bosnia had underlined just how important but also how fragile this partnership was. Without American involvement, and without NATO’s intervention, Milosevic would never have signed the Dayton peace accord. Yet the imbalance of risks, whereby European ground forces ran the greater part of the risks and US aircraft operated from a safe height, demonstrated that security in this type of intervention was divisible. In January 1994, the specific European defence identity and Europe’s different position within the alliance were recognized at the NATO Summit. The effectiveness of this identity, however, depended on improved capabilities. The wake-up call of Kosovo The Kosovo conflict confirmed Europe’s military shortcomings and the ambiguities of America’s international position. Compared with Bosnia, what was new was the White House’s great prudence concerning the use of force and the conduct of operations. President Clinton’s decision, even before the beginning of the air campaign, to rule out any participation by US ground troops, presented the Europeans with a political fait accompli and a prior strategic limitation. Besides US secretary of state Madeleine Albright’s conviction that human rights had to be defended, in contrast to her president’s lack of interest, the credibility of the Atlantic Alliance, whose ultimatums could not have remained a dead letter indefinitely, was the main issue in this crisis. While there had been no disagreement within the American administration over use of the alliance to resolve the crisis, the choice of ‘political’ strikes to force Milosevic to negotiate had, however, major consequences. That strategy, drawing largely on the Bosnian precedent, was none the less based on a major error of appreciation of military ‘compellence’, i.e. the use of force for political rather than military ends, which has no chance of succeeding unless the adversary considers that the issues being disputed are of secondary concern. Kosovo,

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however, was of vital importance to Milosevic (Layne 1999). This initial error in the US appreciation of the situation was gradually rectified, but the consequences were important. The strategy of coercive diplomacy, which itself was interpreted in different ways once its initial failure had been seen, gave rise to major tensions within the alliance by putting the Europeans in an ambiguous situation: on the one hand the inadequacy of their means made them dependent on the US effort; on the other, consensual political control within the alliance gave them a droit de regard – practically a right of veto – over 99 per cent of the targets selected for air strikes by Washington. Whereas the European allies carried out only about 40 per cent of the strikes, the latent crisis within the alliance stemmed from the fact that while the Americans had great technological superiority in the air, political negotiations were necessary to obtain approval for most – 807 out of 976 – of the sorties carried out against targets in addition to those initially planned (figures from Peters et al. 2001: 25). Without making an effort to improve European military capabilities, Europe’s influence over US strategy would remain minimal and Europe’s responsibility would continue to be limited. An effort to improve Europe’s military capability had become essential if the strategic decoupling of a Europe that was lagging behind technologically was to be avoided; yet doing so would raise fears of the political decoupling of a more autonomous Europe. NATO’s harmony was nonetheless to be maintained. In Kosovo, the alliance’s unity was a precondition for its success.8 European autonomy therefore meant not emancipation but improvement of European means of action inside the alliance. This was the main basis of the Saint-Malo initiative between Tony Blair and Jacques Chirac. The French position vis-à-vis NATO evolved substantially after Bosnia. The French military, traditionally more ‘Atlanticist’ than the Ministry of Foreign Affairs, pleaded for a normalization of French status within NATO. Their close cooperation on the ground in Bosnia with British troops had cultivated a de facto solidarity between the military hierarchies. The French president, particularly sensitive to military affairs, initiated a noticeable rapprochement with NATO.9 This initiative – begun at the June 1996 Berlin meeting but shaken by a Franco-American conflict over France’s insistence that it be put in command of AFSOUTH (Allied Forces South Europe), which included the US sixth fleet, as a condition of its return to NATO’s integrated military structure – happily combined with the new British viewpoint. Britain was aware of the limitations of the exercise in rebalancing the Atlantic Alliance, the European Security and Defence Identity of January 1994, so long as it was seen by the US Congress as a way of reducing US involvement in Europe. As part of a wider policy on Europe, the Blair government considered that it was only through the EU that the Europeans’ military means could be modernized. Even before the dramatic illustration provided by Kosovo, Blair concluded that if this


imbalance continued it would imperil the very foundation of the Atlantic partnership. The way to save the alliance was via Europe. In the eyes of the British, European defence had now acquired real added value. London, in a dramatic departure from its previous policies, reconsidered its veto position on Europe’s responsibility for its own security. The language used at the Saint-Malo summit, referring to a ‘capacity for autonomous action’, represents a compromise between these two developments: the Saint-Malo declaration should be read as a turning point in London’s approach to Europe as much as a French concession to Atlantic legitimacy.10 In that constructive ambiguity, ESDP became a fragile but real area of entente. The core of the compromise lay in the effort made to improve the Europeans’ military capabilities and their intention to take on crisis management operations in the framework of the Petersberg missions. The Saint-Malo process The Kosovo conflict opened the way to a rapid Europeanization of the Saint-Malo agreement. The German presidency worked on transforming this bilateral initiative into a European reality and changing the European defence identity into a European security and defence policy. At the June 1999 European Council in Cologne, member states stated their determination that: the European Union shall play its full role on the international stage. To that end, we intend to give the European Union the necessary means and capabilities to assume its responsibilities regarding a common European policy on security and defence . . . The Union must have the capacity for autonomous action, backed up by credible military forces, the means to decide to use them, and a readiness to do so, in order to respond to international crises without prejudice to actions by NATO. (European Council, Cologne, Annex 1, in Rutten 2001: 91–92) To achieve this goal, several specific institutional changes were made: the nomination of Javier Solana to the post of High Representative for CFSP; the creation of a Political and Security Committee (PSC, more often referred to by the French abbreviation COPS (Comité Politique et Sécurité), consisting of ambassadors of each member state meeting twice a week in Brussels; the creation of a European Military Committee, officially made up of chiefs of defence staff of member countries but in practice attended by their military delegates, which is responsible for giving advice and recommendations to the PSC and the European Council; the creation of a European Military Staff providing expertise for the ESDP, in particular in the conduct of any union military crisis management operation,

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and responsible for early warning, evaluating situations and strategic planning for Petersberg missions, including the earmarking of national and international European forces. These institutional changes did not present any difficulties even if inside the European circle in Brussels, the presence of men in uniforms was a real novelty. The core of the Saint-Malo agreement dealt, however, with capabilities and, in this respect, progress was more difficult. In December 1999, scarcely a year after Saint-Malo, the Helsinki EU summit set out the ESDP process’s Headline Goal objectives. The aim was to put at the EU’s disposal forces capable of carrying out all the Petersberg missions, including the most demanding, in operations up to army corps level, i.e. 50,000 to 60,000 troops. By 2003, member states undertook to deploy forces: militarily self-sustaining with the necessary command, control and intelligence capabilities, logistics, other combat support services and additionally, as appropriate, air and naval elements. Member States should be able to deploy in full at this level within 60 days and within this period to provide smaller rapid response elements available and deployable at very high readiness. They must be able to sustain such a deployment for at least one year. (Helsinki, European Council, 1999, in Rutten 2001: 97). The missions assigned to this Rapid Reaction Force are those defined at Petersberg by WEU in 1992 and repeated in Article 17.2 of the Treaty on the European Union (TEU), i.e. ‘humanitarian and rescue tasks, peacekeeping tasks and tasks of combat forces in crisis management, including peace-making’. However, there was a series of successive interpretations of this legal definition. At Cologne, in June 1999, the Council had stated that these tasks included ‘the full range of conflict prevention and crisis management tasks’. At Helsinki, to fulfil these missions, particular attention was paid to the means necessary for effective crisis management: deployability, sustainability, inter-operability, flexibility, mobility, survivability and command and control. At Laeken, where ESDP was proclaimed operational, it was emphasized that the development of means and capabilities would allow the Union ‘progressively to take on more demanding operations’. Following 9/11, the extraordinary European Council of 21 September 2001 stated that it would fight terrorism in all its forms and that ‘the fight against terrorism will, more than ever, be a priority objective of the European Union’. ESDP could not ignore this new strategic context. At the June 2002 European Council in Seville, it was decided to increase the EU’s involvement in the fight against terrorism through a coordinated, interdisciplinary approach ‘embracing all Union policies, including by developing the Common Foreign and Security Policy (CFSP) and by making the European Security and Defence Policy (ESDP) operational’.


It was recalled that ‘the CFSP, including the EDSP, can play an important role in countering this threat to our security’ (Seville, European Council, 2001, in Rutten 2002: 151). The way in which the Petersberg missions were interpreted thus evolved. From a legal point of view, they now covered nearly every hypothesis except collective self-defence, which remained a NATO prerogative. In fact, it will be the EU’s military capabilities that will determine the scope of these missions in practice. The first aspect of this endeavour concerned the reinforcement of the civilian component of the European forces, i.e. police missions. With the experience of Bosnia, particularly the civil administration of Mostar by the WEU, the Multinational Protection Force (MPF) in Albania and the Multinational Advisory Police Element (MAPE) in Operation Alba, the Union acquired considerable expertise in civilian crisis management. It was, therefore, logical to incorporate and develop that acquis in ESDP. The June 2000 Feira European Council listed the four priority areas in which the union intended to acquire concrete capabilities: the police, strengthening the rule of law, civil administration and civil protection. Member states undertook to supply police for international missions. Rapid progress was made and member countries’ contributions were greater than the number requested. On January 2003, the EU took over from the UN’s International Police Task Force (IPTF) in Bosnia-Herzegovina. This aspect of ESDP is now a reality and will eventually be extended to Kosovo. During the meeting of European Union Defence Ministers in Rome in October 2003, France proposed the formation of a European Military Police Force. The idea, which is based on the success achieved in the Balkans by the Multinational Specialized Units (MSU), is to create a sort of European gendarmerie to be employed on peace support operations.11 The second part of the Saint-Malo process was less successful. The first European effort sprang from a WEU study of November 1999 on European forces available for Petersberg missions. If the numbers alone permitted a wide range of missions to be executed, several shortfalls were identified, particularly air transport, precision-guided munitions, the deployment of headquarters close to theatres of operation, mobility and intelligence. This purely quantitative exercise concluded that, for an operation requiring the deployment of two divisions to a theatre of operation several thousand kilometres away, Europe had adequate ground forces but was incapable of deploying them, and that, in that respect, any operation of any size would have to depend on the infrastructure and forces of the Atlantic Alliance. For smaller, preventive deployments nearer at hand, Europe had adequate means (WEU Council of Ministers 1999). In order to fulfil the Helsinki Headline Goal, EU members had to commit forces to a catalogue. In November 2000, the Capabilities Commitment Conference drew up a catalogue of forces that member countries intended to earmark to meet the overall objective. The European Military Staff concluded that, as of that date, the target number of troops had been met, but underlined the inadequacies in terms of air

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transport, C3I (Communications, Command, Control and Intelligence) and others. If there was no difficulty in providing the number of troops, qualitative shortfalls needed to be addressed. In November 2001, the European Capability Action Plan (ECAP) was launched. The ECAP exercise set up a series of panels headed by one or two member states responsible for coordinating work. In May 2003 more national commitments were requested and specific programmes to address current shortfalls were launched. The process of beefing up European capabilities is, however, encountering several structural obstacles. The first and best known concerns military expenditure. Only a few countries have actually raised their defence budgets. On average, European countries spend only about 2 per cent of their GDP on defence. Only the UK spends the same proportion as the US on research, development and procurement. Beyond quantitative budgets, the real issue is to spend better by reducing operating costs, which represent a European average of 60 per cent, and to have more rational procurement with reductions in unit costs and in through-life support. The second challenge lies in the transformation of European military forces. The revolution in military affairs has dramatically changed the way American forces now operate. Such concepts as Network Centric Warfare (NCW) and Effects Based Operations (EBO) are the major factors behind force transformation and industry restructuring.12 As envisioned in ‘Joint Vision 2020’, a report by the Joint Chief of Staff, published in June 2000, information superiority on a global scale will allow US forces to move more quickly, to target harder and more precisely and to sustain operations longer. The effects of such a transformation have been obvious in the recent conflicts in Afghanistan and Iraq. Europe could not rival the scale of such developments. The transformation of European forces from territorial defence to intervention and expeditionary warfare is nonetheless a precondition to an effective European security strategy. Some European countries have recognized the importance of this doctrinal shift. The UK in ‘A New Chapter for the Strategic Defence Review’ published in July 2002 has emphasized the relevance of Network Enabled Capability (NEC). Over a three-year period from 2002–03, the defence budget has to rise by £3.5 billion, with a third of this increase dedicated to equipment and capabilities to respond to the challenges of forces transformation towards lighter and mobile, deployable and sustainable forces. France has announced a significant increase in defence spending for the period 2003–08 (more than €3 billion from the 2002 level). Among the priorities identified are: intelligence (the development of a new satellite communications network and two more reconnaissance satellites); strategic air and sea lift (a new additional aircraft carrier and the A400M military transport aircraft); and defence against nuclear, chemical and biological weapons. Germany is still struggling with the legacy of its past. Conscription will not be abolished in the short term. Nonetheless, the defence policy guidelines released in May 2003 by the German Defence Ministry recognized that traditional territorial defence no


longer met actual security policy requirements. Defence policy is now geared to the prevention and containment of crises and conflicts. The Bundeswehr will thus be reformed toward a more expeditionary force. The defence budget constraint, however, has significantly reduced the scope and the pace of forces restructuring. Apart from the big three members of the EU, several countries have already begun the restructuring of their forces. For example, Sweden has launched in 1999 a New Defence programme that includes the adoption of Network Centric Warfare techniques. The Netherlands and Belgium have already implemented some forces integration. The third obstacle is to do with the fact that it will take time to correct European military inadequacies. Military equipment programmes sometimes spread over several decades and, as a result, delays are inherent in the actual exercise of correcting deficiencies. The important A400M programme, which has been scaled down compared with the initial objectives but now finalized regarding its budget, is symbolic of this. This means that, in the years to come, Europe will continue to depend in part on American assistance for operations of any size.13 The last handicap is more fundamental and concerns the very definition of the Headline Goal. Designed on the basis of the Bosnian experience, and therefore corresponding to a strategic imperative of the 1990s, the military tool aimed at seems at once over-ambitious – if it is to be used essentially for crisis management in the Balkans, which are now broadly peaceful – and ill-tailored to cope with the rising strategic demands of the twenty-first century.14 What was needed was a framework spelling out the strategic objectives of the Union in an international environment that has dramatically changed with the attacks of 9/11. This was achieved with the Solana document first proposed in June 2003 and formally endorsed in December 2003. As was the case with Saint-Malo after Bosnia, the EU Security Strategy was a product of deep divisions about the Iraqi crisis.

ESDP forward: the quest for credibility Without entering into the details of the Iraqi crisis, several remarks should be made in regard to ESDP. First, even if the crisis was one of the most severe across the Atlantic and inside Europe, one element was left relatively untouched, i.e. the EU-NATO cooperation following the December 2002 Berlin Plus Agreement, which enables NATO assets to be used for EU operations. At the height of the crisis, when the UN was deeply divided and the NATO alliance was in disarray about assistance measures for Turkey, the cooperation between the two organizations over Berlin Plus survived. With the end of the Turkish veto on the Berlin Plus agreement achieved in Copenhagen in December 2002, a series of agreements were reached between the two organizations. This allowed for the launch of Operation Concordia in Macedonia in March 2003 and most importantly Operation Altea in Bosnia in December 2004, by far the biggest EU mission so far.

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The international context The attacks of 11 September 2001 were world changing events. If there was one area to which EU member states were not necessarily accustomed but of which they were at least aware, it was terrorism. However, hyper-terrorism is quite different from the classical terrorist groups such as ETA (Euskadi Te Askatusuna), the IRA (Irish Republican Army), Action Directe or the Red Army Faction, which were active in Europe. Because of their need to win over the population, these groups were restrained in their willingness to use unlimited violence. As an expert argued, these terrorists wanted ‘many people watching, but not many people dead’ (as quoted in Müller 2003: 22). As demonstrated by the Madrid terrorist attacks on 11 March 2004, with hyper-terrorism there is a readiness to resort to unrestricted violence and a willingness to inflict the widest possible damage. It comes from a conviction that the battle is absolute, even more so when it is waged in the name of a divine authority. Religious extremism reinforces a strictly Manichaean view where the enemy is demonized and provides the justification for whatever level of violence is needed to destroy him. This radicalization along with the non-state nature of the threat makes terrorist strategy basically non-deterrable. With the fall of the Twin Towers, America rediscovered a real and dangerous world; 9/11 was clearly an historical moment, a period of ‘tectonic shifts’ as Condoleezza Rice put it, similar to the rise of the Soviet challenge at the end of the 1940s. President G. W. Bush, like Truman in the era of the cold war, proceeded to a global analysis of the threat of international terrorism, but, unlike Truman, Bush favoured a unilateralist approach to the new challenge of international terrorism. The gap between an increasingly revisionist US and a generally status quo Europe took a dramatic turn in Iraq.15 The pre-war period saw one of the deepest NATO crises since Suez. But the divide was not limited to transatlantic relations. It cut deeply across Europe at a moment when delegates from member states were discussing a new draft constitution whose aim was to bring more coherence in European affairs, including foreign policy. The European internal crisis over Iraq contrasted with genuine cooperation between the US and Europe on terrorism – cooperation that was successful, as arrests of members of Al Qaeda cells in several European countries demonstrated. The strategic reasons to wage a preventive war against Iraq seemed evident to the Bush administration. Disarmament, regime change and democracy in the Middle East were mutually reinforcing arguments for the president. The case presented to the international community was, however, confusing. Generally, the United States tends to colour strategic necessities with an idealistic blend. With Iraq, it was the other way around. Washington shaded its main objective of regime change with strategic motives linked to disarmament and terrorism. Contrary to a basic realist


analysis, the White House tended to attribute to Saddam Hussein malicious intentions first and hypothetical capabilities second. Reversing this order of priorities, most Europeans focused on current capabilities and disregarded past behaviour.16 In other words, Saddam Hussein was indeed a confirmed liar, but ultimately he was not a danger. Precisely because Iraq was a war of choice, not a conflict of necessity, and because military victory was preordained, the debate evolved rapidly from the particular case to general principles, from Saddam’s disarmament to Washington’s use of force, from the opportunity of a UN second resolution to the relevance of the UN itself, from a specific demand of assistance by Turkey to NATO’s raison d’être. This represented too high a challenge to the EU. The Union’s attitude was thus essentially reactive: if it had set out its own definition of a ‘material breach’ of Resolution 1441, specified the conditions under which force might be used and laid down a precise timetable for action, it would have been able to foresee events and to strengthen its position in Washington. Instead, EU foreign ministers decided to formally hand over the Iraqi affair to the UN, without addressing the strategic case at hand. By doing so, they in fact gave a free hand to the permanent European members of the UN Security Council, France and the UK, i.e. the two countries with the most divergent views vis-à-vis the US. Not very surprisingly, London and Paris decided to focus on UN legitimacy, while ignoring the European framework. In this configuration, the EU was thus irrelevant. Yet the capacity of the EU to bounce back from internal divisions must be underscored. Clearly, the EU has always advanced from crises to crises. But that it recovered so quickly is worth noting. In ESDP, in particular, the EU made at least three major breakthroughs. The first element that must be noted is the achievement of the Berlin Plus agreement following the deal on enlargement that the EU had reached in Copenhagen. Since the NATO ministerial meeting on 14–15 December 2000, Turkey had continuously blocked Berlin Plus. Following three long years of negotiation, the Copenhagen decision on enlargement, American pressures and, above all, the Tayyip Erdogan’s party’s electoral victory cleared the way for the ratification of the Nice provisions regarding Berlin Plus. The agreement reached at Brussels in December 2002 opened the way to a strategic partnership between the EU and NATO on crisis management. The arrangements were completed in March 2003, and their implementation, notably the agreement on classified information, allowed the EU to take over Operation Allied Harmony in Macedonia at the end of the same month. Thus, even if NATO was deeply split about the war in Iraq, the relationships between the EU and NATO were put on more solid ground. The second element was the adoption of a common Action Plan, spelling out a genuine European strategy against proliferation.17 Among the

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measures adopted in June 2003, the strengthening of the IAEA (International Atomic Energy Agency) regime regarding verification, a stronger role for the UN Security Council in this matter and the creation of an observatory on WMD (Weapons of Mass Destruction) disarmament and non-proliferation constitute considerable progress. The EU seems ready to apply more strictly conditionality rules regarding nuclear and WMD proliferation with economic partners. The clear demonstration of Europe’s new commitment in non-proliferation policy took the form of a more assertive stance regarding the Iranian nuclear programme. It remains to be seen, of course, whether the agreement reached October 2003 will bear fruit, but the display of unity among the ‘Big Three’ sharply differed from their ongoing disagreements about Iraq (see Bellaigue 2004; Milhollin 2003; Everts 2003). The third significant progress was operational. In May 2003, following a French proposal, the Union decided to set up its first autonomous operations (i.e. outside Berlin Plus) in the Democratic Republic of Congo (DRC). This operation – known as Operation Artemis – took place within the framework of UN Security Council resolution 1484 and the European Council’s Joint Action adopted in June 2003. It consisted of the deployment of an Interim Emergency Multinational Force in Bunia, in the Ituri region in the Democratic Republic of Congo. The aim of the mission was to contribute to the stabilization of the security conditions in Bunia and to the improvement of the humanitarian situation and to ensure the protection of the airport, displaced persons and the civilian population. This force stayed until September 2003 to allow the return of a reinforced UN Organization Mission in the Democratic Republic of Congo (MONUC). It was thus a bridging operation, limited in time and space. This operation demonstrated the EU’s capacity to react quickly and effectively in an uncertain and remote theatre. As soon as early July, the full spectrum of the operation was already in place. Although the French forces represented a large majority of the military personnel involved in the operation, it is important to note, however, that the planning of the operation and the rules of engagement were decided by the 15 member states. In a very short time, EU members committed officers and troops to work with Paris. Apart from the French troops on the ground (90 per cent of the force), a special operation unit from Sweden, intelligence units from the UK and a medical team from Belgium were involved on the ground. The operation headquarters were based in Paris and included 80 military officers from all European countries. The force headquarters were set up in Entebe, which served as a logistical hub to dispatch the necessary forces to Bunia. On all counts, Operation Artemis was a success. First, security in the region was restored, a large number of refugees returned and a significant disarmament of local militia took place. Politically, it led to renewed peace efforts between the DRC government and the armed groups. Second, it was a success for Europe. Artemis was proof that the EU could respond to an


emergency situation in a very short period of time. The institutional framework put in place the years before worked adequately. It also demonstrated its willingness to take risks. Although the EU did not suffer any casualties, such an eventuality was real enough when the operation was planned. From this experience, the EU has already drawn several lessons. The recent proposal for battle groups, i.e. units of around 1,500 men that would be quickly deployable for peace-enforcing operations under a UN mandate is a direct consequence of the Artemis operation (Cronin 2004). Soft power plus Most importantly, the Iraq crisis has produced a common awareness among Europe’s leaders of the need for strategic thinking on international security issues. One of the major reasons why the EU was so divided in the case of Iraq was its lack of strategic reasoning. By contrast, a majority of member states addressed the issue through political motives, some internal, some external, which led to a merely reactive policy. There was also the general recognition that a divided Europe is powerless. At the same time, an enlarged Europe of 450 million people cannot escape its obligations and responsibilities in the world. This was the premise of the Solana document, ‘A Secure Europe in a Better World’, first published in June 2003 for the EU Salonika summit and then endorsed by the EU in December 2003. A strategy document is always a tentative exercise by nature. It is more about a vision than about strategic interests, more about attitude than policies. This is even truer for an organization of 25 independent states. The document is thus historic. Several significant characteristics must be underlined. First, it is a threat-driven document, a dimension never previously addressed as such by the EU. The document identifies five major threats: international terrorism, WMD proliferation, regional conflicts, failed states and organized crime. In such an environment, the EU recognized that the traditional form of defence – territorial line in a cold war fashion – is a thing of the past. The first line of defence now lies abroad. If this analysis may sound familiar and comparable to the US National Security Strategy of September 2002, the message to Washington is, in fact, seriously nuanced. First, Europe is at peace, not at war. Even if the possibility of an Al Qaeda attack against the territory of the EU is duly underlined, the document is not a call for arms or an appeal for homeland defence. Second, if the security threats are similar, their management is not. In the EU’s view, addressing these threats cannot be limited to military force: while not excluding its use, the Union intends to take a broader approach, combining the political and the economic, the civil and the military. Regarding terrorism, there will be no effective solution that is not global. Regarding WMD proliferation, strengthening international regimes and progressive conditionality remain the best approach to counter

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proliferation. Without excluding the use of force, the EU clearly rejects a strategy of preventive strikes. Last, while the Union recognizes that ‘failed’ or failing states – not ‘rogue’, a category that does not exist in EU terminology – is a major source of instability, it advocates the extension of good governance rather than regime change. From a similar analysis of the post-9/11 environment stems a more diversified and comprehensive strategy. Briefly put, for the EU, the world has indeed become more dangerous, but it has also become more complex. Second, the strategy builds on the EU’s acquis and identity in security policy. It is based on three pillars – extending the zone of security around Europe, strengthening the international order and countering the abovementioned threats – and two key concepts, namely ‘preventive engagement’ and ‘effective multilateralism’. The first refers to the EU’s approach to stability and nation building, which is far more comprehensive than the military method favoured by Washington. It includes police personnel (the EU has a reserve of 5,000 police that could be sent abroad), civil administration and civil protection officials and civilian authorities and justice officers to strength the rule of law. This specific approach is now enlarged to include new neighbouring countries such as Moldova, Ukraine and Belarus. This in turn demands a new strategic partnership with Russia, which remains an indispensable actor in the region, as the Kosovo conflict has shown. The European Commission president, Romano Prodi, has set out a vision of the EU offering its neighbours ‘everything but institutions’. The aim is to promote the emergence of a ‘ring of friends’ across Eastern Europe and the Mediterranean, bound together by shared values, open markets and borders, and enhanced cooperation in such areas as research, transport, energy, conflict prevention and law enforcement (European Commission 2003). This strategy of ‘preventive engagement’ encapsulates the European way of dealing with instability that includes rapid deployment of troops, humanitarian assistance, policing operations, enhancement of the rule of law and economic aid. Therein lies the EU’s added value and specific know-how, a dimension that is lacking in the US arsenal. Condoleezza Rice once said that American 82nd Airborne soldiers were not supposed to help kids go to kindergarten. European troops do. This US weakness is Europe’s strength. The second concept, ‘effective multilateralism’, captures the essence of the EU’s ruled-based security culture. The security strategy stresses that ‘the fundamental framework for international relations is the United Nations Charter. Strengthening the United Nations, equipping it to fulfil its responsibilities and to act effectively, is a European priority’ (European Council 2003). Since Europe has suffered more than any other continent from attempts by one actor to dominate others, from what was called universal monarchy and balance-of-power politics, from secret diplomacy and from the major wars that followed, the EU is keen to stress the core fundamental values of the UN charter based on the sovereignty of its units


and the legitimacy of collective action. Because the true meaning of international norms and rules lies in the definition of what is and what is not permissible in the international arena, the EU reaffirms that, as a matter of principle, the UN Security Council should remain the forum for legitimizing the use of force. But it recognizes that rules also need enforcement. ‘We want international organisations, regimes and treaties to be effective in confronting threats to international peace and security, and must therefore be ready to act when their rules are broken’ (ibid.). The ‘effectiveness’ element implies that, in emergency situations, immediate actions are not always compatible with a formal application of international public law. The Kosovo precedent and the Iraqi preventive war are the unwritten references for what is allowed and what is not. Clearly, the Venus image of a Kantian Europe has been modified towards a more realist conception of the EU’s security interests. Both concepts, ‘preventive engagement’ and ‘effective multilateralism’, are by nature elusive notions that will receive a more precise content in concrete situations. They represent nonetheless a significant departure from an exclusively civilian-oriented foreign and security policy: the use of force, albeit as a last resort, is deemed necessary in specific circumstances. This message, one of ‘soft power plus’ should be welcomed in Washington.18 A new activism ESDP as such is still in its infancy. The Saint-Malo process is not even five years old. If we use a European time scale, this is indeed short. It took 40 years to develop a genuinely common market, a decade to launch the euro. So ESDP must be judged in this context. The process is slow, but it is moving. The key word in this process is learning: learning by doing as in Operation Concordia or Artemis and learning from failure as in Bosnia and Iraq. From each failure, there is a new ambition. This is important to understand, especially from an American point of view. There is a genuine willingness to move forward that was not present ten years ago, when, for example, the focus was on the re-activation of the WEU. ESDP has changed its dimensions; from a mechanism of crisis management in the Balkans, it has become a necessary mechanism to enhance Europe’s role in the world. What the EU must achieve is a double grand bargain, first among its members, then with other partners. The first bargain refers to the always precarious equilibrium between realism and idealism. Of course, every foreign policy initiative contains both dimensions and there is always a fake antagonism between these two poles. Nonetheless, for the EU, these two dimensions stand for different national sensitivities. The risks of disagreements and divisions inside the EU are thus real. For example, the deliberately vague notion of ‘preventive’ engagement carries a message of a more proactive Europe, but at the same time it solemnly echoes UN principles. If humanitarian

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tasks are obvious examples of uncontroversial preventive actions, a UN mandate is not deemed as an obligation, since for the intervention in Kosovo, which was perceived as legitimate by a majority of EU members, there was none. As far as terrorism is concerned, it should be noted that some big European players have introduced the concept of preemption in their official doctrine.19 So it seems odd that the wording ‘pre-emption’ was ultimately changed. Behind this debate lies the old controversy about the range of application of UN Article 51 and the elusive notion of immediate danger. As far as WMD are concerned, the new assertiveness of the EU regarding the Iranian nuclear programme is a good indicator of the progress achieved. There is now a broad consensus on how, why and when to use force, but Europe is still weakened by recurrent divisions regarding the post-Iraq stabilization process. The second grand bargain concerns the right balance between regional and global responsibilities. For some European countries, especially the new members, the new threats cannot replace the old ones. Internal instability, ethnic conflict, civil wars, drug trafficking and criminal networks seem to them more threatening than terrorism and WMD proliferation. But for others, the EU security agenda must address the new post-9/11 environment. There is a hierarchy of priorities that remains to be clarified. Moreover, following the enlargement process and the willingness to shape a more active neighbourhood policy, the scope of this strategy seems far-reaching. Ukraine, the South Caucasus and the Black Sea basin are now direct neighbours. There is a tension between the EU as a regional stabilizer and the EU as a global actor. For example, Moscow is seen as an essential partner for an effective policy in Moldova or Belarus, while at the same time Moscow’s cooperation with Iran could become a serious problem. In any case, this policy will demand that a serious security dialogue be conducted with Russia. Last, enlargement to include Turkey will dramatically affect the security environment of the Union. With a moving border, the EU encounters difficulties in finding the right balance between its regional priorities and its global role. The third bargain deals with the credibility of Europe’s means to act. Especially vis-à-vis the US, there is a tendency to quarrel about grand theories, such as unipolarity versus multipolarity, legality versus legitimacy, soft versus hard power, etc., but there is a corresponding shortage of concrete actions. Sharing more global responsibilities, enhancing an effective multilateralism, and taking on preventive engagement are ambitious goals that will stay unfulfilled if the current mismatch between ends and means is allowed to persist. The European security strategy demands a major improvement of the EU’s capabilities. The new ambition of the enlarged EU has huge consequences in terms of the projection and sustainability of forces. Several improvements must be initiated now in order to have adequate defence tools ready by 2010.


In this respect, one of the highest priorities is deployability. The EU has nearly 1.5 million men and women under arms and the member countries spend around €160 billion a year on defence. Yet the EU barely has the means to deploy these troops. According to defence experts, the Union has something like 50 brigades that could be deployed rapidly, and, if we apply the classic sustainability requirement, it seems that the EU can rely on only 17 brigades. The Helsinki Headline Goal objectives were not achieved in 2003. It was concluded in October 2003 that the target was out of reach and that a new and more flexible Headline Goal 2010 will be considered. In any case, with a far more ambitious security framework, the instrument of crisis management formatted after the Bosnian experience seems obsolete. Most importantly, severe shortfalls remain: strategic transport, air-to-air refuelling, air ground surveillance, all-weather strategic theatre surveillance capabilities, combat search and rescue, electronic intelligence and precision guided munitions. The European Capabilities Action Plan, launched in October 2001, recognized this necessity. The current NATO Response Force process is also supposed to help this transformation. Clearly, technology per se is not an end in itself, but it is an indispensable means to provide more flexibility and effectiveness. But budgetary constraints will continue to put severe limits on the necessary adaptation of European forces to the new strategic environment. In short, the EU’s effort has to move from the quantitative to the qualitative. The second aspect deals with forces transformation. It means, first, conversion from conscription to a professional army, and, second, adopting network centric warfare techniques that until now have been introduced only in Sweden and the UK and, partially, in France. In any hostile environment, the risk of casualties remains too high. The EU must enhance the modernization of its capabilities in order to fight according to criteria demanded by modern democracies. At a minimum, effective C4ISR, i.e. command, control, communications, computers, intelligence, surveillance and reconnaissance, is an absolute requirement. To achieve this goal, incentives must be put in place for member states that will not dramatically increase their defence budgets. To this end, a European fund could be envisaged in relation to the future Defence Agency. In the same vein, research and development activities must be better funded and coordinated. The rather sad story of the A400M aircraft (nearly ten years were needed for a very specific and not very demanding capability) should not be repeated. Common procurement and common programmes to develop and maintain capabilities could lead to rapid benefits. In short, the EU has to spend better. The third effort deals with the coherence between the various tools of the EU. The relationship between the European Commission and the Council is sometimes painfully arcane. Economic assistance is provided without the necessary strategic overview. The difficult introduction of ‘conditionality’ in these assistance programmes is rarely followed by concrete

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sanctions. In the civilian area of operations, capabilities must also be improved. So far, EU operations were limited to police operations, such as in Bosnia, but a pre-emptive engagement strategy will need to bring in border guards, civil administrators, home and justice affairs officials and NGO experts. This will require cooperation between the Council and the Commission, collaboration between the EU military staff and civilian officials and, most importantly, common planning. The creation of the position of foreign minister of the EU should bring more consistency into the EU’s external actions. If this minister wants to gain some initiative vis-à-vis member states, this step should eventually lead to the creation of a European security council that could advise the minister and the Council and coordinate positions among the foreign ministries of the member states. With 45,000 diplomats working for the EU’s members, the EU’s leverage could thus be dramatically enhanced. This, of course, will take time because members will be keen to keep their sovereign prerogatives. Yet imaginative solutions are needed if the EU’s new ambitions in international affairs are to be met.

Conclusion: from Sarajevo back to Sarajevo EDSP has always possessed a mixture of ‘fear and hope’, to quote the title of Reid’s account of the creation of the Atlantic Alliance (Reid 1977). Fear has various aspects. The first was real enough during the cold war. Every suggestion that Europe should enhance its capabilities to defend itself immediately raised the prospect of decoupling vis-à-vis the US. Since the collapse of the EDC project, transatlantic debates for more than 40 years were tainted by this ambivalence: doing more was doing less. After 1989, the ghost of decoupling resurfaced at every opportunity: after Maastricht, when for the first time a defence dimension for the EU was mentioned, however elusively; after Saint-Malo, when London and Paris agreed on the need to equip the EU with genuine defence capabilities; and after the April 2003 summit when an autonomous planning cell was agreed between Brussels, Paris, Berlin and Luxembourg. It is safe to say that ESDP is not only a European project – it is mostly a transatlantic debate. The second fear concerned the sovereignty rights of nation states in matters of national security dealing with questions of life and death of their citizens. Especially for the big three – France, the UK and Germany – the Europeanization of defence policy was seen as a serious infringement of their prerogatives. For former world powers, the dilution of their national interests into a wide European consensus was seen as an exorbitant diminution of their status. Yet, without them, there is no European defence policy. In other words, the bigger players in the EU have the least interest in pursuing European integration in these matters. To these fears corresponded parallel hopes. The fear of decoupling among some European countries was matched by a parallel ambition of


others to achieve just that. For small actors, a European defence policy was not about breaching sovereignty but regaining it. Thus the chief characteristic of the ESDP project was its ambivalence. In this context, the status quo was the obvious route; institutional arguments were preferred to improvements in capabilities and long-term ambitions were discussed rather than pressing necessities. After 2003, however, the volume of rhetoric diminished. A new pragmatism was emerging that allowed for more optimism. Defence is now one of the most promising areas for cooperation. There is at last a real willingness to move forward, as the creation of a European Agency for Capabilities and Armaments and the prospect of permanent structured cooperation in defence demonstrate. The next challenge for the EU will be its takeover of the task of peace-keeping in Bosnia from NATO. The tragedy of Sarajevo was the major reason behind the drive for ESDP. The peaceful reconstruction of Sarajevo will be the test of its credibility.

Notes 1 The author is European Security Fellow at the International Institute for Strategic Studies. 2 The term was first coined by Deutsch (1953) and was subsequently developed by Deutsch and his collaborators in Deutsch et al. (1957). 3 This ‘obstinate’ qualification refers to the well-known piece by Hoffmann (1966). 4 According to Stein (1993: 214–215), ‘The question of command and control of the Eurocorps has been whether this is all a French plot to winkle Germany out of NATO or a German plot to seduce France into NATO’. See also Haine (2001). 5 See Article J.4 of the Maastricht Treaty. On these negotiations, see among others, Duke (2000). 6 On the German position, see Hodge (1998) and Müller (1994: 139ff.). On France and UK, see Tardy (1999) and Sharp (1992). 7 ‘The conclusion which the region drew from the Yugoslav war was not that the West was discredited, but rather that the institutional approaches that the West was putting forward were pure confections. Those who still wonder why the East Europeans became so obsessed with NATO membership should search through the annals of the Yugoslav saga’ Eyal (1997: 700–701). 8 According to one Serb official, ‘We never thought NATO would stay united through 10 weeks of bombing and the killing of innocent civilians. We got it wrong’ (quoted by Hosmer 2001: 41). 9 On the French position, see Grant (1996) and Menon (1995). 10 The Saint-Malo declaration stated: ‘The European Union must have the capacity for autonomous action, backed up by credible military forces, the means to decide to use them and a readiness to do so, in order to respond to international crises . . . In strengthening the solidarity between the member states of the European Union, in order that Europe can make its voice heard in world affairs, while acting in conformity with our respective obligations in NATO, we are contributing to the vitality of a modernized Atlantic Alliance which is the foundation of the collective defence of its members.’ For good analyses of this agreement, see Howorth (2000) and Mathiopoulos and Gyarmati (1999).

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11 One of the first to suggest this European capability was the former French general Morillon in a report published in spring 2003. See Spinant (2003). 12 Network Centric Warfare derives its power from the strong networking of a well-informed but geographically dispersed force. The enabling elements are a high-performance information grid, access to all appropriate information sources, weapons reach and manoeuvre with precision and speed of response, valueadding command-and-control (C2) processes – to include high-speed automated assignment of resources to need – and integrated sensor grids closely coupled in time to shooters and C2 processes. Network Centric Warfare is applicable to all levels of warfare and contributes to the coalescence of strategy, operations and tactics. It is transparent to mission, force size and composition, and geography. Speed of Command is the process by which a superior information position is turned into a competitive advantage. On this revolution in military warfare, see, for example, Cebrowski and Garstka 1998. 13 ‘For complex operations demanding a high operational tempo, reduced risks to EU forces and minimum collateral damage, Europe will, for the rest of the decade, still depend on US assets. Strategic sea and airlift, intelligence assets and all-weather precision-strike capabilities are further prerequisites for major high-tempo operations’ Hagman (2002). See also Haine 2004. 14 According to Heisbourg (2000: 8), ‘It is in the interpretation and the implementation of the Petersberg tasks that the absence of a common European strategic vision becomes all too apparent . . . Current EU language [the Petersberg Tasks] does not provide even the roughest guideline as to the vision of the world in which European forces could be called upon to operate.’ 15 The term revisionist is not pejorative. It merely depicts the relationship between a state actor and the international system. The term was first used by Morgenthau (1946). 16 Even if governments aligned themselves differently, public opinion throughout Europe was largely opposed to the war. 17 In a declaration agreed in May, the EU set up its strategy vis-à-vis WMD proliferation: ‘Political and diplomatic preventative measures (multilateral treaties and export control regimes) and resort to the competent international organizations (IAEA, OPCW [Organization for the Prohibition of Chemical Weapons], etc.) form the first line of defence. When these measures (including political dialogue and diplomatic pressure) have failed, coercive measures under Chapter VII of the UN Charter and international law (sanctions, selective or global, interceptions of shipments and, as appropriate, the use of force) could be envisioned. The UN Security Council should play a central role’ (European Union 2003). 18 See, on this aspect, Haine (2003/04). 19 See for instance the French loi de programmation militaire.

References Bellaigue, Christopher (2004) ‘Big Deal in Iran’, The New York Review of Books, 26 February: 30–33. Cebrowski, Vice Admiral Arthur K. and Garstka, John J. (1998) ‘Network-Centric Warfare: Its Origin and Future’, U.S. Naval Institute Proceedings, January: 11–24. Cooper, Robert (2003) The Breaking of Nations: Order and Chaos in the Twenty-first Century, New York: Atlantic Monthly Press. Cronin, David (2004) ‘Defence Chiefs Set to Back “Big Three” Peace Force Plan’, The European Voice, 10: 12, 1 April.


Deutsch, Karl (1953) Political Community at the International Level: Problems of Definition and Measurement, Foreign Policy Analysis Series, no. 2, Princeton NJ: Princeton University Press: 1–25. Deutsch, Karl et al. (1957) Political Community and the North Atlantic Area: International Organization in the light of Historical Experience, Princeton NJ: Princeton University Press. Duke, Simon (2000) The Elusive Quest for European Security: From EDC to CFSP, Basingstoke: Macmillan. European Commission (2003) Wider Europe – Neighbourhood: A New Framework for Relations with our Eastern and Southern Neighbours, communication, March. European Council (2003) ‘A Secure Europe in a Better World. European Security Strategy’. Available at http://ue.eu.int/uedocs/cmsUpload/78367.pdf. European Union (EU) (2003) ‘Declaration on WMD proliferation’. Available at http://ue.eu.int/pressdata/EN/reports/76328.pdf. Everts, Steven (2003) ‘The EU Must Be Tougher and More Creative on Iran’, CER Bulletin, 32 (October/November). Eyal, Jonathan (1997) ‘NATO’s Enlargement: Anatomy of a Decision’, International Affairs, 73: 4, October. Gordon, Philip H. (1997/98) ‘Europe’s Uncommon Foreign Policy’, International Security, 22: 3 (Winter): 74–100. Gow, James (1997) Triumph of the Lack of Will: International Diplomacy and the Yugoslav War, New York: Columbia University Press. Grant, Robert P. (1996) ‘France’s New Relationship with NATO’, Survival, Summer: 58–80. Hagman, Hans-Christian (2002) European Crisis Management and Defence: The Search for Capabilities, Adelphi Papers no. 353. Oxford: Oxford University Press for the International Institute for Strategic Studies. Haine, Jean-Yves (2001) L’Eurocorps et les identités européennes de défense: du gage francoallemand à la promesse européenne, Paris: Centre d’Études de la Défense. –––– (2003/04) ‘The EU Soft Power: Not Hard Enough?’, Georgetown Journal of International Affairs, V: 1 (Winter/Spring): 69–77. –––– (Rapporteur) (2004) ‘European Defence: A proposal for a White Paper’, EU Institute for Security Studies (ISS), May. Heisbourg, François (2000) ‘Europe’s Strategic Ambitions: The Limits of Ambiguity’, Survival, 42: 2 (Summer). Hodge, Carl C. (1998) ‘Botching the Balkans: Germany’s Recognition of Slovenia and Croatia’, Ethics and International Affairs, 12: 1–18. Hoffmann, Stanley (1966) ‘Obstinate or Obsolete? The Fate of the Nation-State and the Case of Western Europe’, Daedalus, 95 (Summer): 862–915. Hosmer, Stephen T. (2001) The Conflict over Kosovo: Why Milosevic Decided to Settle When He Did, Santa Monica CA: Rand Corporation. Howorth, Jolyon (2000) ‘Britain, France and the European Defence Initiative’, Survival, 42: 2 (Summer): 33–55. Layne, Christopher (1999) ‘Blunder in the Balkans’, Policy Analysis, 345, 20 May: 1–19. Mathiopoulos, Margarita and Gyarmati, Istvan (1999) ‘Saint-Malo and Beyond: Toward European Defense’, The Washington Quarterly, 22: 4 (Autumn): 65–76. Menon, Anand (1995) ‘From Independence to Cooperation: France, NATO and European Security’, International Affairs, 71: 1 ( January): 19–34.

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Milhollin, Gary (2003) ‘The Mullahs and the Bomb’, The New York Times, 23 October. Ministry of Defence (2002) ‘A New Chapter for the Strategic Defence Review’. Available at www.mod.uk/issues/sdr. Morgenthau, Hans (1946) Scientific Man vs. Power Politics, Chicago IL: University of Chicago Press. Müller, Harald (1994) ‘Military Intervention for European Security: The German Debate’, in Lawrence Freedman (ed.) Military Intervention in European Conflict, Oxford: Blackwell. –––– (2003) Terrorism, proliferation: A European Assessment, Chaillot Papers no. 58, Paris: European Union Institute for Strategic Studies. Peters, John E., Bensahel, Liston, T. and Williams, T. (2001) European Contributions to Operation Allied Forces, Santa Monica, CA: Rand Corporation. Reid, Escott (1977) Time of Fear and Hope: The Making of the North Atlantic Treaty, 1947–1949, Toronto: McClelland & Stewart. Rutten, Maartje (2001) From Saint-Malo to Nice: Core Documents of ESDP, Chaillot Paper, no. 47, Paris: European Union Institute for Security Studies. –––– (2002) From Nice to Laeken: Core Documents of ESDP, Chaillot Paper, no. 51, Paris: European Union Institute for Security Studies. Sharp, Jane M. O. (1992) Bankrupt in the Balkans: British Policy in Bosnia, London: Institute for Public Policy Research. Spinant, Dana (2003) ‘French General Calls For EU To Develop “Eurozone For Defence” ’, The European Voice, 9: 12, 27 March. Stein, George (1993) ‘The Eurocorps and Future European Security Architecture’, European Security, 2: 2 (Summer). Tardy, Thierry (1999) La France et la gestion des conflits yougoslaves 1991–1995: enjeux et leçons d’une opération de maintien de la paix de l’ONU, Brussels: Bruylant. WEU (Western European Union) Council of Ministers (1999) Audit of Assets and Capabilities for European Crisis Management Operations, Luxembourg, 23 November. Zelikow, Philip (1996) ‘The Masque of Institutions’, Survival, 38: 1 (Spring): 6–18. Zimmerman, Warren (1999) Origins of a Catastrophe: Yugoslavia and Its Destroyers, New York: Times Books.

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14 Regional institutions and regional crises in East Asia Moving away from the ‘comfort zone’? Mely Caballero-Anthony Introduction If the old adage, ‘nothing is constant except change’, could encapsulate the dynamics of a rapidly changing global environment, this would ring hollow when applied within the context of regional institutions and their responses to regional crises in East Asia.1 Decades after the formation of the Association of Southeast Asian Nations (ASEAN) in 1967 and the ASEAN Regional Forum (ARF), these regional institutions evoke mixed responses. In more recent years, observers and commentators have either cast aspersions on the impotence of both ASEAN and ARF in dealing with regional crises or have been rather sanguine in their assessments of the capacities of these regional bodies. Attempts to present a more balanced view of ASEAN and the ARF are rather few and far between since regional events and the series of crises that have hit the region tend to overwhelm – to say the least – one’s analysis of and perspective on a highly fluid environment. Indeed, one only needs to have a quick scan at the headline news to recognize the wide range of issues that dominate the security agenda of the East Asian region today. The aftermath of the 9/11 terrorist attacks in the United States has had serious repercussions on the security of the region. These events have heightened the vulnerability of states to acts of terrorism as the extent and the nature of terrorist threats facing Southeast Asia have unfolded – starting with the discovery of local terrorist networks in the region such as Jemaah Islamiyah ( JI) and continuing with the increase in terrorist-linked activities such as the series of bombings in Indonesia. Added to these have been the sluggish growth and poor economic outlook in the region, exacerbated by the Iraq war in March 2003 and the health crisis brought on by the infectious disease Severe Acute Respiratory Syndrome (SARS) and more recently, the Bird Flu disease. In Northeast Asia, the North Korean nuclear weapons programme has fuelled new tensions in the Korean peninsula while the reverberations

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along the Taiwan Straits and the South China Sea continue. To be sure, East Asia is a hotbed of crises – some are nascent while others are simmering. Unless these crises are resolved or managed carefully, the region could find itself engulfed in a maelstrom of security threats. How have the ASEAN and the ARF coped with these challenges? At the 36th ASEAN Ministerial Meeting held from 16 to 19 June 2003 in Phnom Penh and followed by the 10th Meeting of the ARF, significant initiatives were proposed to enable ASEAN and the ARF to respond more effectively to the new challenges facing the region. One of these was the Indonesian concept of an ASEAN Security Community (ASC). The concept of a security community ‘was meant to provide a sense of purpose, a practical goal, and a future condition that all [ASEAN] members should strive for’ ( Jakarta Post 2003a). To achieve this, Indonesia proposed the establishment of several institutions to deal with security issues. The types of institutions proposed included an ASEAN Centre for Combating Terrorism, an ASEAN Peace Keeping Training Centre, and an ASEAN Maritime Surveillance Centre. The initiatives that have emerged can be viewed as positive signs of efforts to enhance the capabilities of regional institutions to cope with emerging issues that threaten the security and stability of the region. That these initiatives came from within ASEAN reflects the growing sense within the organization of its limitations in responding effectively to new challenges. These initiatives can also be viewed as ASEAN’s move to become more proactive in a rapidly changing strategic environment. A number of questions arise from these developments, such as: How radical are the proposals to build new institutions in ASEAN? What are their implications for the prevailing modalities of ASEAN’s diplomacy? How viable are these new ideas given the disparities among ASEAN member states? The above questions are certainly not exhaustive and may require comprehensive analyses that are beyond the scope of a single paper. The objectives of this chapter therefore are twofold. First, it provides an assessment of how regional institutions have managed regional crises in East Asia. Second, against the background of new security challenges in the region, the chapter will examine the prospects of new mechanisms emerging to replace existing ones. Many of the current writings on ASEAN and the ARF have lamented the weaknesses of their respective mechanisms in addressing regional crises. Moreover, these writings have been critical of the prevalence of regional norms that defined these mechanisms and have regarded them as irrelevant and obstructive to effective regional action (Rüland 2000, Henderson 1999; Garofano 1999). It is the argument of this paper that viewed against a longer timeframe, regional mechanisms, including the prevailing norms found in ASEAN and the ARF, have not been entirely ineffective in addressing security challenges. In fact, the normative framework that exists has been instrumental in the development of regional institutions, notwithstanding its perceived lacunae. This chapter further argues that institutional

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development for capacity building in ASEAN and, to some extent, the ARF will make significant progress only when domestic capacities among member states are strengthened to enable them to cope with their own domestic challenges and become more committed to regional initiatives. In developing these arguments, the chapter starts with a brief historical narrative of the establishments of the ASEAN and the ARF and reviews the mechanisms that have been developed by both regional institutions in managing regional conflict and regional security. The second section examines the extent to which these mechanisms have been effective or ineffective in dealing with regional crises, with particular emphasis on two important periods: (1) during the 1997–98 financial crisis, and (2) post9/11. The third section discusses the factors that cause these institutional limitations. This includes a subsection that revisits the discourse on the principle of non-interference in ASEAN. Finally, the fourth section looks at prospects for change in institutional capacity and institution building in the region.

Back to the basics of ASEAN and the ARF: understanding varying mechanisms of crisis (and conflict) management An account of the region’s experience in managing crises and/or conflicts requires going back to the basics of the nature of ASEAN and the ARF, their conception of a regional security order and their respective security approaches. For the purpose of drawing the linkages between regional mechanisms of crisis/conflict management and regional security approaches, a short and selective summary is provided below. In the case of ASEAN, many scholars and analysts have had their own versions of the grouping’s approaches to security but they essentially agree on three major points:2 1

Approaches to crisis/conflict have generally been defined by the region’s own notion of a regional security order. In Southeast Asia, comprehensive security had been the organizing security concept among most ASEAN members. Comprehensive security was not just about state and military security but also covered political, economic and socio-cultural security, with particular attention given to economic development.3 Comprehensive security underscored national resilience and in the aggregate would build regional resilience. To enhance regional resilience, the founding members of ASEAN had to find appropriate and acceptable mechanisms for regional reconciliation in a regional milieu which was once characterized by intramural disputes. By establishing ASEAN in 1967, member states provided themselves with a framework for building a stable structure of relations to contain and manage intramural tensions such as the conflict between Malaysia


2

3

and Indonesia (when they were embroiled in the Confrontation in 1963 over the formation of the Federation of Malaya) and the conflict between Malaysia and the Philippines (which involved a dispute over the territory of Sabah).4 Thus, ASEAN was, to all intents and purposes, a diplomatic device for regional reconciliation – which for a long time became the defining process underpinning the region’s approach to peace and security. The ultimate objective of the process was to build a security community founded on the assumption and goal that no member states would ever go to war with each other. The types of mechanisms for regional reconciliation (for which read crisis and/or conflict management) found in ASEAN came in many forms with the ultimate objective of preventing and managing conflicts. The literature on ASEAN’s mechanisms of conflict management (CM) has distinguished between two types of interlocking mechanisms: (1) formal agreements and treaties that encourage cooperation in several areas; and (2) informal processes, often referred to as the ‘ASEAN way’ of diplomacy, that emphasize the need and desirability for cooperation (Caballero-Anthony 1999). Between the two, it is the latter that have often caught the attention of analysts and been studied the most – often overlooking the formal agreements that have defined the nature of intra-ASEAN cooperation. The point here is that ASEAN is the embodiment of both the formal and informal processes that are described below. Last, but certainly not least, ASEAN’s multi-faceted mechanisms can be categorized as low-key security approaches – ‘low key’ in the sense that they promote trust and confidence building through established habits of dialogue, observance of regional norms and the building of loose/informal institutions to support process-oriented approaches to prevent regional conflicts. As a result, ASEAN’s security approaches, when compared with those of Europe, for example, are characteristically labelled by scholars as ‘soft’ institutionalization (see, on this concept, Acharya 1997, 1999 and 2001).

These were the same approaches that ASEAN embodied when it helped to establish the ARF in 1994. The creation of the ARF may be seen as ASEAN’s attempt to extend its processes of conflict avoidance to the Asia Pacific region. Hence, the process of regional reconciliation that was earlier confined to ASEAN was expanded to become inclusive regionalism with the formation of the ARF. The 23-member ARF has become a grouping of like-minded and non-like-minded states straddling the vast expanse of Asia Pacific countries, and can therefore be regarded as the proverbial blocks of regional peace.5 Its modalities of conflict management have been defined by its primary objective of fostering constructive dialogue on political and security issues of common interest and concern and, in the process, building trust and confidence among its members (ASEAN 1995).


Following this summary of the main characteristics of ASEAN’s and the ARF’s notion of a regional order and their preferred approaches to security in the region, the next section will discuss the growing list of security issues that have challenged the limits of the existing regional mechanisms.

Growing challenges in ASEAN and the ARF: old and new6 While most observers agree that ASEAN has played a critical role in defusing tension in the region and decreased the probability of war between its members, this picture has been challenged in recent years. These challenges became more pronounced during the 1997–98 Asian financial crisis and resurfaced in the aftermath of the 9/11 terrorist attacks in the United States. For the purpose of a more manageable discussion, this section will highlight only some of the current and more pressing regional challenges confronting ASEAN and, by extension, the ARF and examine how these institutions have responded. The 1997 crisis and its repercussions The celebration of ASEAN’s 30-year anniversary in 1997 was marred by several unfortunate events. While ASEAN prepared to welcome its new members – Cambodia, Laos and Myanmar – a power struggle in Cambodia caused ASEAN to delay its admission. Soon after the Cambodian crisis, the region was hit by a devastating financial crisis. As states were coming to grips with the ensuing damage, the onset of the haze problem from the forest fires in Indonesia only compounded the situation. As though the region had not had enough, a year later the region witnessed the alarming instability in Indonesia triggered by the unexpected downfall of the country’s long-serving president, Suharto. Since the founding of ASEAN, Indonesia and its leader Soeharto had been regarded as the beacon of stability in the region. In the same year, Malaysia experienced its first major political crisis in 30 years with the dismissal and subsequent trial and imprisonment of its deputy prime minister, Anwar Ibrahim. During this period, ASEAN’s credentials were challenged on many fronts. First, the ASEAN norm of non-interference became problematic when the organization deferred Cambodia’s membership as a result of the coup there, but went ahead and admitted Myanmar in spite of protests against its poor human rights record. ASEAN received a lot of flak for its inconsistency in handling the two cases. ASEAN’s position was that while Myanmar’s political conditions were regarded as internal matters of the state, Cambodia’s case broke the regional norm of the non-use of force. As a consequence, ASEAN insisted that Cambodia meet certain conditions


before its admission, including, among others, the holding of free and fair elections and the establishment of the Cambodian Senate. ASEAN also formed the ASEAN Troika to deal with efforts to restore political stability in Cambodia.7 Second, at the height of the Asian financial crisis, ASEAN was roundly criticized for its inability to respond urgently and cohesively to the devastating consequences of the crisis that threatened the economies of many member countries. This was despite the fact that ASEAN had already initiated various measures to contain the damage and instituted rescue packages that saw Singapore and Malaysia extending financial support to crisis-stricken members such as Indonesia and Malaysia. In fact, months before the fall of the Thai baht, which triggered the currency crisis, ASEAN central banks were said to have been working to increase financial cooperation to strengthen the region’s capacity to combat currency volatility. It is also noteworthy that the ASEAN banks had provided large-scale support for the Thai baht in May 1997, when currency speculators were attacking it aggressively. However, against the massive capacity of currency speculators, the ASEAN central banks found themselves defenceless.8 ASEAN also convened several meetings at three levels (heads of state/government, economic and finance ministers and representatives from the private sectors) to work out an ASEAN response. The meetings came up with several measures. The key elements of these included: •

• •

the bilateral swap arrangements (also known as the Chiang Mai Initiative) that allowed for stand-by emergency funds to assist economies badly affected by the crisis, aside from the financial assistance provided by multilateral financial institutions such as the International Monetary Fund (IMF); the promotion of trade within Southeast and East Asia using local currencies; the establishment of a regional surveillance mechanism that was essentially aimed at promoting a more effective surveillance of the economic policies and practices of ASEAN members, facilitated by fuller disclosure of relevant economic data.9

Moreover, the crisis did not deter ASEAN from pushing ahead with its commitment to the ASEAN Free Trade Area (AFTA).10 In December 1998, ASEAN leaders declared their commitment to greater economic integration and to trade and investment liberalization and facilitation (Severino 2002: 95). Third, the environmental damage caused by the haze problem became a test case of ASEAN’s ability to deal cooperatively with problems in one country that severely affected its neighbours. Although the environmental disaster happened in Indonesia, it also inflicted considerable damage on


neighbouring countries – Singapore, Malaysia and Brunei. At the height of the problem, it was estimated that Malaysia and Singapore suffered about $1 billion losses in economic activity, such as tourism and air travel, and in immediate health costs (Tay 2001: 154). As the Indonesian government received flak from the international community, former Indonesian president Soeharto apologized on television for the country’s inability to avert the regional disaster. In response, ASEAN instituted the Regional Haze Action Plan (RHAP), which the ASEAN Ministers of the Environment endorsed in 1997. The RHAP called on ASEAN members each to develop a National Haze Action Plan that would require them to report their plans to combat fires and haze in their respective environments. ASEAN also put in place a joint regional technical assistance project with the Asian Development Bank (ADB) to assist member countries requiring technical support in firefighting procedures. In spite of the regional agreement and cooperation that have been instituted, recurrent fires and attendant haze problems continue to affect several states in the region. Among the factors cited to explain the ineffectiveness of the RHAP have been insufficient institutional support to prioritize environmental law and policy making in ASEAN and the shortcomings of the Indonesian national system (Tay 2001). Finally, the most difficult challenge to ASEAN’s modalities was the tragic events in East Timor in 1999. ASEAN and even the ARF came under severe criticism for their inability to stem the violence and gross violations of human rights that occurred there. As noted in many accounts, ASEAN could not initiate any form of conflict-preventive action to stop the atrocities committed in many parts of the territory soon after the East Timorese voted for independence from Indonesia. It was not until the United Nations organized a peace-keeping mission under the framework of the International Force for East Timor (INTERFET) that violence was controlled and large-scale humanitarian relief operations could be carried out.11 The East Timor crisis was viewed by many as a humanitarian disaster waiting to explode and which ASEAN, conscious of its policy of nonintervention, did not do anything to prevent. Although ASEAN member countries became active participants of INTERFET, ASEAN’s contributions were lost in the barrage of criticisms of ASEAN’s failure to ‘intervene’ in what the organization itself considered an intra-state conflict. Criticisms were even more strident for the ARF, which was silent throughout the crisis. Its inability to respond to the crisis in East Timor was seen as a litmus test of its inadequacy as a regional institution to act in times of crisis or prevent crises from happening. ASEAN officials responded to the criticisms by declaring that only the UN had the legitimacy and the capabilities to undertake a peace-keeping operation and to mobilize the massive resources necessary to respond to the East Timor crisis. What ASEAN did was to ‘undertake consultations, arrive at consensus and let the individual members decide on what specific


contributions to make to the UN effort’ (Severino 2000). It is significant that, at the height of the East Timor crisis, Indonesia apparently intimated to ASEAN officials that it was willing to accept humanitarian intervention as long as ASEAN had a role in it. Indonesia also wanted assurances that Australian forces would not be given a dominant role in peace-keeping operations. As argued by a former Thai foreign minister, without ASEAN the crisis the East Timor could have been worse (Pitsuwan 2002). Post-9/11 and regional security The impact of the 9/11 terrorist attacks in the United States has had a great bearing on the security agenda in the region. The event and its aftermath saw the region embarking on its own ‘war’ against terrorism amidst prevailing fears/concern that Al Qaeda or Al Qaeda-linked terrorist networks were operating in the region. This threat became starker with the spate of bombing incidents in Indonesia, starting with the Bali bombing in 2002 and including the attack outside the Australian embassy in Jakarta in 2004. Members of the JI have been implicated in most of these incidents. Since 9/11, ASEAN has taken steps to respond to the threat of terrorism. During the 7th ASEAN Summit, the members issued an ASEAN Declaration on Joint Action to Counter Terrorism, which outlined several measures to fight terrorism. These included: deepening cooperation among front-line law enforcement agencies in combating terrorism and sharing ‘best practices’; and enhancing information/intelligence exchange to facilitate the flow of information, in particular, on terrorists and terrorist organizations, their movement and funding, and any other information needed to protect lives, property, and the security of all modes of travel; and others (ASEAN 2001, 2002a). Under the ASEAN framework, member states signed the Agreement on Information Exchange and Establishment of Communication Procedures on 7 May 2002 to promote cooperation in combating transnational crime, including terrorism. Similarly, ASEAN and the United States issued a Joint Declaration for Cooperation to Combat International Terrorism on 1 August 2002, which committed the US and all ten ASEAN members to improve intelligence-gathering efforts, strengthen capacity-building measures and enhance mutual cooperation (US Department of State 2002). There have also been several activities undertaken under the auspices of the ARF. As ASEAN countries grappled with the intractable problems of terrorism being in the region, the threats highlighted another dimension to the challenges confronting the existing regional mechanisms in dealing with this problem. Although ASEAN countries presented a united front as revealed in the initiatives undertaken by the organization, regional efforts and coordination have been hampered by the domestic politics of member


states (Desker 2002). Countries such as Indonesia and Malaysia, which have large Muslim populations, have had to tread carefully in handling this problem and to be cognizant of the domestic sensitivities involved in apprehending Muslim militant groups. Initially, Indonesia was perceived to be in a denial mode. The government was slow in responding to calls for the arrest of certain individuals who were reported to be involved directly in terrorist acts. It was not until the Bali incident that the Indonesian government finally acted more decisively with the arrests and trials of suspected terrorists such as Abu Bakar Bashir, alleged leader of JI, and Amrozi (Hafidz 2002). SARS and the health crisis While fighting terrorism has been the common issue that has preoccupied ASEAN states, the unexpected onset of the infectious disease SARS triggered another crisis in the region. SARS was a rude awakening for the region, whose already expanding list of non-traditional security issues did not include health and human security. At the height of the crisis, according to the World Health Organization (WHO), SARS had infected some 8,402 people, and there were 772 deaths in 29 countries. The rapidity of the spread of SARS across borders, not to mention the attendant disruption in business and travel, caught many governments by surprise. The extent of the SARS crisis was clearly reflected in the sudden disruption of economic activity in several economies in Asia. With travel advisories issued against SARS-affected countries, there was a drastic fall in tourism and travel, making these two sectors the worst hit in most economies. However, there was also the fear of a possible domino effect. Starting with the fall in consumer confidence, a drop in domestic demand and poor business sentiment, many businesses were moving towards the brink of collapse as the cost of SARS started to rise. The WHO put the cost of SARS to Asia at US$30 billion, while other estimates went as high as US$50 billion for the region and US$150 billion for the global economy. In Hong Kong, for example, which recorded the second highest number of SARS cases, government estimates placed the cost of SARS at about US$1.7 billion, while in Singapore the government forecast indicated that SARS could shave as much as a half to one percentage point off its GDP growth forecast (Far Eastern Economic Review 2003). Topping all these was the huge slump in the retail industry that saw a 20–50 per cent fall in business for many countries such as China, Singapore and Vietnam (Far Eastern Economic Review 2003). ASEAN acted promptly to put in place several mechanisms to address the SARS crisis. Two months after the outbreak, ASEAN convened an emergency meeting among its health ministers and its leaders. A special ASEAN+3 meeting was also held back to back with the ASEAN meetings (ASEAN 2003a). These meetings outlined several measures to address


the epidemic. They included steps such as: exchanging of information on best practices to contain infectious diseases, including legislation (e.g. quarantine laws); strengthening cooperation among front-line enforcement agencies, such as health, immigration, customs, transport and law enforcement; and harmonizing travel procedures to ensure proper health screening at the points of origin and arrival. Other measures considered were enhancing cooperation between ASEAN and WHO, developing an ASEAN Centre for Disease Control, and developing a regional surveillance system to complement the WHO-inspired Global Outbreak Alert and Response Network (ASEAN 2003a).

Assessing regional capacities: filling in the scorecard The foregoing discussion on regional challenges and responses presents a mixed picture of ASEAN’s crisis and/or conflict management capacities. The aim of the preceding section was to present various multi-dimensional security challenges facing the region and the extent to which ASEAN and the ARF have responded to these issues. The argument in this section is that it is only after we have evaluated precisely what they were supposed to have and have not done in these circumstances that we can objectively make practical suggestions about the need for new or revamped regional mechanisms. In this regard, a few observations are made: 1

2

It has been argued that ASEAN and, by extension, the ARF have been mostly an ‘enterprise’ for regional reconciliation. The institutional development of ASEAN was consequently parsimonious, and whatever institutions it had were geared mainly to engendering an environment for trust and confidence building among members, particularly during the organization’s formative years. Thus, over the past four decades, ASEAN chose to take a very conservative path to ensure a stable transition and as far as possible a smoother calibration of relationships among its members. The same holds true for the ARF, which has placed a lot of emphasis on developing a wide range of confidence-building measures. As a consequence, when crises occurred that needed specialized expertise relating to financial meltdowns, environmental disasters, peace-keeping operations, and highly infectious epidemics, ASEAN and the ARF were generally unprepared. The kinds of crises and challenges that confront the region today require much more than what a loosely structured organization could provide. Given this lack of institutional capacity and/or expertise, ASEAN’s responses to crises have been mostly ad hoc. This type of response was most visible during the 1997–98 period, when the region was beset by a series of crises. To recapitulate, these ad hoc responses included


3

4

5

establishing the ASEAN Troika to respond to the crisis in Cambodia, instituting the bilateral swap arrangement to help badly affected economies and the Regional Haze Action Plan to fight the haze, and strengthening intelligence cooperation to combat transnational crime and terrorism, etc. But, while many of the crisis responses may have been ad hoc, ASEAN did in fact act. Moreover, while these responses may have been widely regarded as quite inadequate, ASEAN members were nonetheless seen to be working together in the midst of crises. Under the given circumstances, one should not therefore dismiss the efforts taken by ASEAN members to cooperate in addressing certain problems that were within their capabilities to manage. Clearly, there were crises – such as the one in East Timor – that were beyond their limited capacities. There remains, however, the question of the effectiveness of these ad hoc responses. Without a strong secretariat, the effectiveness of ASEAN initiatives requiring close coordination and constant monitoring is or would be severely handicapped. Unlike the EU, which has a huge reservoir of human resources to support its activities, ASEAN has but a paltry number of staff in its secretariat to attend to its burgeoning activities. This also means that many of ASEAN programmes languish through a lack of – both financial and human – resources. The problem is magnified with regard to the ARF, which, ten years after its inception, still has no secretariat of its own. The above analysis points towards one main conclusion: that ASEAN as well as the ARF can only be as strong and as effective as their member states want them to be. And whether or not member states agree to push the limits of their organization depends on their respective domestic capacities to cope with their own domestic challenges.

Given its observable record, one comes up with a mixed – perhaps ambivalent – assessment of ASEAN. One has to have a more realistic picture of what ASEAN has been so far in order to have an appropriate yardstick to measure its capacities. Clearly, ASEAN was created for a specific purpose during a particular period. Four decades later, the international and regional landscapes have dramatically changed. At the very least, ASEAN has attempted to adjust to changing circumstances by establishing regional crisis-management mechanisms, as highlighted in the previous section of this chapter. However, the bigger test of the adequacy of these new mechanisms will be how they fare in addressing emerging and more complex challenges. The scorecard is even more inconclusive with regard to the ARF. But so far, even its fiercest critics would agree that, as a multilateral forum for discussion of security, the ARF has had moderate success in confidence building in the region. Member states have recognized the importance


of the ARF as a vehicle for airing their own security perceptions. Some analysts in fact credit socialization through the ARF with having engendered a more positive among states that were initially suspicious towards multilateralism (see Tan See Seng et al. 2002). In assessing regional capacities, one must therefore be mindful of the huge and wide-ranging list of challenges that beleaguer both ASEAN and the ARF. More importantly, one must also be cognizant of the kinds of domestic challenges that each ASEAN member faces as a result of the rapidly changing global environment. Before return to this issue in the last section of this chapter, we must turn to another significant factor that has had an impact on the capacities of regional organizations – the policy of non-interference. The principle of non-interference and its impact on regional responses An assessment of regional crisis-management capacities would be incomplete if one did not address ASEAN’s policy of non-interference in the domestic affairs of member states. Often cited as a major obstacle to attempts at concerted regional action, this critique of ASEAN resonated loudly during the Asian financial crisis, at the onset of the haze and at the height of the East Timor crisis – so much so that when ASEAN openly called for the early resolution of the political stalemate in Myanmar and for the early release of Aung Sang Suu Kyi at the 36th ASEAN Ministerial Meeting in June 2003, most observers lauded ASEAN’s statement as a ‘bold’ and ‘unprecedented’ move. Newspaper reports and editorials labelled ASEAN’s move as a ‘clear departure from ASEAN’s policy of non-interference and constructive engagement’ (Straits Times 2003; also Bangkok Post 2003; International Herald Tribune 2003; Jakarta Post 2003b). While ASEAN’s statement on Myanmar may have appeared novel and unconventional, there are two salient points that need to be stressed in this regard. First, this is not the first time that ASEAN departed from its practice of not interfering in the domestic affairs of member states. In ASEAN’s history, there have been instances in the past where ASEAN ‘interfered’ in the domestic affairs of a member state. For example, amidst the protests and confusion in the Philippines during the ‘People Power’ revolution in February 1986 to bring down former president Ferdinand Marcos, ASEAN called on ‘all parties [in the country] to restore national unity . . . and to act with restraint and join efforts to pave the way for a peaceful resolution to the crisis’ (ASEAN 1986). As mentioned above, ASEAN also set up the Troika to help restore political stability after the coup in Cambodia in 1997. In response to the current impasse in Myanmar, ASEAN has mooted the idea of launching a similar mechanism. Aside from the above examples where there was clearly a departure from the customary practice, certain member states have also ‘interfered’


on their own in each other’s affairs and in this sense defied ASEAN conventions. Thus, in October 1998, former Indonesian president Habibie and former Philippine president Joseph Estrada openly expressed concern over the treatment of the then Malaysian deputy prime minister Anwar Ibrahim after he was dismissed by prime minister Mahathir. These comments elicited diplomatic protests from Kuala Lumpur (New Straits Times 1998). Similarly, in February 1999, Singapore prime minister Goh Chok Tong called on Indonesia to hold elections that would be accepted as fair and legitimate by the Indonesian people (Goh Chok Tong 1999). There are many more examples of this nature in ASEAN’s experience where contradictions have existed between the organization’s policy and the actual practice of inter-state relations among members (Funston 1998; Haacke 1999; Ramchara 2000). While the policy of non-interference has been formally maintained, in practice it has been applied very flexibly, thus invalidating the argument that the policy has hampered ASEAN’s response to regional problems. Second and equally significant, while there has been much ado about this norm of non-interference and although there have been several departures from this policy, these have not prevented cooperation among members from being enhanced, whatever tensions and conflicts these incidents may have caused. By placing too much emphasis on this so-called ‘obstructive’ norm, the nature of ASEAN’s engagement, which is actually akin to the ‘constructive intervention’ that was proposed by Malaysia’s Anwar Ibrahim, has not been fully understood.12 Nevertheless, the process by which this ‘refined’ version of constructive intervention metamorphosed into the doctrine of ‘enhanced interaction’ (see also the chapter in this volume by Haacke) points up the limits on the extent to which ASEAN wants to push this modified practice. These limits were clearly reflected in the way the June 2003 ASEAN Joint Communiqué was worded in reference to Myanmar. The statement effectively stopped short of making any specific demand for a date of Aung San Suu Kyi’s release and did not go beyond the lines ‘[looking] forward to the early lifting of restrictions placed on Aung San Suu Kyi and the NLD members’ (ASEAN 2003b). This all raises the question of whether ASEAN will ever be able to move away from its ‘comfort zone’ when it comes to the issue of managing regional crises.

Prospects for enhancing regional capacities: beyond the comfort zone? A key question that this chapter has examined, in addressing the issue of regional institutions and regional capacities, is whether the international (or regional) community has been expecting too much from ASEAN – or, for that matter, the ARF. Clearly, the expectations directed at the two organizations exceeded the more limited purposes for which ASEAN and


the ARF were created. This was the rationale why this chapter began by going back to the basics of ASEAN and the ARF to understand their initial raison d’être. Unless we understand what these regional institutions were supposed to do and not to do, it would not be realistic to offer suggestions to revamp regional mechanisms and create new ones. The other point to consider is whether the nature of cooperation within ASEAN – be it in the political, economic or security-related areas – has changed in the light of emerging new challenges and the prevalence of old problems. One could argue that cooperation has in fact deepened in certain areas, contrary to expectations that regional and domestic crises would preoccupy most member states, make them inward-looking and consequently uninterested in regional initiatives. A solid example of this is the realization and progress of AFTA. AFTA has been a showcase of how ‘boldly’ ASEAN has changed its modalities from being based on informal agreements to more rule-based arrangements. Even more radical is the agreement to establish by 2020 an ASEAN Economic Community (AEC), which would involve a higher level of economic integration (ASEAN 2002b). This project has since been formalized in the 2003 ASEAN Bali Concord, which lays the foundations for the creation of an ASEAN community by 2020. The community will rest on three pillars, namely the AEC, an ASEAN Security Community (ASC) and an ASEAN SocioCultural Community (ASEAN 2003c). The AEC and the ASC projects provide some interesting insights into the directions that ASEAN is taking as it moves towards the formation of a closer community and adopts modalities that go beyond the ‘ASEAN way’. To understand the nature of ASEAN – and its mechanisms through which it responds to crises – one has, therefore, to go beyond examining the features of the ‘ASEAN way’. It is, however, more difficult to present ASEAN as a cooperative regional enterprise than it is to explain its norms and other mechanisms. This explains why the discourse on ASEAN’s norm of non-interference usually becomes the focus of one’s analyses rather than the types of regional cooperation that are taking place in the political, economic and security areas. The key question is the extent to which ASEAN’s actual crisis responses and crisis-management mechanisms are adequate and sufficiently effective in addressing the myriad security issues with which it is confronted, whether the agreed modalities have been enforced at various levels, and whether these initiatives are in fact sustainable. In coping with the trying times, ASEAN in the crisis management modalities it has developed has stuck very closely to the ‘comfort zone’, i.e. ASEAN members still want to be reassured that things will not change in spite of the dramatic developments around the region. Thus most of the new modalities have not been bold but rather incremental in nature. New modalities have also been tailored to be flexible and non-threatening to regime security in the ASEAN states. This preference is clearly illustrated


in ASEAN’s position with regard to the incremental development of the ARF, i.e. the decision to adopt the three-stage approach and the caution not to move too fast on certain confidence building measures (CBMS) that enforce compliance. Given the altered international environment, what are the prospects for change in respect of ASEAN’s approaches to managing crises? The answer to this question depends on how change is defined. If change refers to reforming ASEAN’s organizational structure and provide it with the capabilities to deal with regional crises, then the emergence of new mechanisms such as the ones found in Bali Concord II indicate that ASEAN is indeed moving in that direction, albeit at a slow pace. The new institutional arrangements developed to deal with issues, such as the regional action programme for protection of the environment, instituting surveillance mechanisms for financial coordination and enhancing intelligence-sharing procedures to fight terrorism, are indicative of the new tools ASEAN has crafted to address new security challenges. The ‘ASEAN way’ is therefore not static. In fact, the new mechanisms that have evolved signal a nascent trend towards greater institutionalization of ASEAN. But if change implies a far more institutionalized and organized ASEAN, with supra-national institutions that can develop norms that both guide and restrain the action of states, in effect making these institutions actors in their own right with the ability to both influence and be influenced by states, then the prospects are dim, at least in the immediate to short-term future. To all intents and purposes, ASEAN rests on a political decision by states to remain a cooperative enterprise of separate, sovereign states. Unless member states muster the political will to drastically change the modalities of ASEAN, much of the old ‘ASEAN way’ will still remain. One must also be aware that while the ASEAN way has engendered shared norms that form the basis of a regional community (Acharya 2000 and 2001), these shared norms are not sufficiently strong to alter significantly member states’ actions, particularly when they run contrary to national interests. The quest for identity, as Acharya has eloquently posited, has become even more difficult as a result of ASEAN’s expansion. The perils of expansion Considering that ASEAN now comprises ten states, four of which are relatively new members (Cambodia, Laos, Myanmar and Vietnam, known as the CLMV countries) with political and economic attributes that are very different from those of the ‘old’ members, instituting new and bold changes to ASEAN modalities would not be easy. Although much has already been written about this issue, some of the ‘new’ challenges that the enlarged ASEAN has been grappling with bear reiterating (Buszynski 1997–98; Hernandez 2000; Tay 2003). These include the diversity of political regimes of new members, the stark differences in levels of economic


development, the impact of these ‘diversities’ on ASEAN modalities such as the process of consultation, dialogue and consensus decision making. Collectively, these differences pose a serious challenge to ASEAN’s socialization and norm building, its cohesion and institutionalization. Moreover, this diversity has given rise to political controversy (such as that about what is happening in Myanmar) and exposed internal divisions within ASEAN. As argued by the late Michael Leifer, regardless of the benefits that ASEAN has had from enlargement in terms of diplomatic weight, ‘the key to the efficacy of any regional institution is its ability to display consensus with credibility’ (Leifer 2001: 504). To be sure, the political impasse in Myanmar is a big dilemma for ASEAN, and unless progress is made on the issue, the threat to ASEAN’s credibility will become more acute when Myanmar takes over the chairmanship of ASEAN in 2006. ASEAN’s expansion is therefore a major obstacle to drastic reform in ASEAN modalities. The comfort level among members in the old ASEAN is no longer the same in the expanded association – although it can be argued that with the changes in leadership among the old members, the absence of like-minded leaders may have already changed the quality of interaction among ASEAN elites. However, the issue here is not about stretching the comfort level among ASEAN leaders, but rather about maintaining or keeping it as close as possible to the previous levels to maintain cohesion within the grouping. A good test to gauge the potential for drastic change is to examine the progress of certain initiatives undertaken by ASEAN to prevent conflicts. Here the experience with the ASEAN Troika is instructive. In spite of the relative success of the ASEAN Troika in helping to manage the 1997 Cambodian crisis, this mechanism has not been invoked since then. Although ASEAN had agreed on the operationalization and modalities of the Troika, progress was effectively stalled when Vietnam took over the chairmanship of the ASEAN Standing Committee. Indonesia’s proposal for a regional peace-keeping training centre, outlined recently in its concept paper for an ASEAN security community, is another example of a pending initiative. This idea was already outlined, with a view to developing mechanisms for preventive diplomacy, in the ARF’s concept paper from 1995, but has yet to gain consensus within ASEAN. It will be interesting to see if and when this idea will finally take off (on this issue, see the chapter by Haacke in this volume). Domestic capacity for change Another significant factor in determining prospects for reform is the domestic capacity of ASEAN member states to cope with their own internal challenges. One need not go into details about the complex fault lines that beset every member of ASEAN. The Indonesian story is more than sufficient to demonstrate how crucial it is for members to build their capacity

Moving away from the ‘comfort zone’? 281 to manage their own domestic issues to make it easier for them to join and commit to regional endeavours. Hence, what happens within these member countries is of great consequence to other members and to the progress of ASEAN. Similarly, the capacities of the CLMV countries – handicapped in multiple ways as they are when it comes to coping with emerging (both local and regional) challenges – also have implications for other ASEAN members. The development gap between the richer and poorer member states in ASEAN is considerable, with Singapore having the highest per capita income of more than US$20,000, followed by Brunei with US$15,174, Malaysia and Thailand with about US$2,000–US$4,000, and the Philippines and Indonesia under US$1,000. In sharp contrast, Cambodia, Laos, Myanmar and Vietnam have average per capita annual incomes of less than US$300 per year (see Figure 14.1.) To try to bridge this economic divide and avoid the emergence of a two-tier ASEAN, ASEAN leaders launched the Initiative for ASEAN Integration (IAI) in November 2002. The IAI aims to assist the CLMV countries in the economic integration process within ASEAN. Given the various limitations and obstacles cited above, will ASEAN be able to re-invent itself?13

Conclusion ASEAN is once again at a crossroads. Since the onset of the series of crises in 1997, the soul-searching process within ASEAN has continued. In the midst of growing crises in the region, views on regional institutions, specifically ASEAN, have polarized and perhaps become overly simplified. The argument in this chapter is that, when assessing ASEAN and its 25,000 20,878 20,000 15,174 15,000 10,000 3,788

Figure 14.1 GDP per capita in 2001 for ASEAN countries (US$) Source: The Economic Intelligence Unit (2002).

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US Dollars

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capacity to manage regional crises, it is necessary to examine not only the dominant feature of the ‘ASEAN way’, but also to take into account the progress that has been made in deepening and widening cooperation in many areas. By taking a more comprehensive approach in examining regional mechanisms in managing crises, one can see that ASEAN has in fact evolved and undertaken reforms, albeit slowly. The process of evolution is best manifested in the patchwork institutionalization that has taken place as ASEAN adopts ad hoc approaches to regional problems. It is important to recognize the extent to which ASEAN has moved toward more institutionalization, specifically by adopting more rule-based mechanisms. As noted earlier, the challenge for every regional institution is continually to prove itself relevant and effective in changing circumstances. The slow evolution of reforms within ASEAN and its pattern of reactive rather than proactive responses to crises have prompted admissions – even within ASEAN circles – that much still needs to be done, not only to restore the image of a vibrant organization, but also to prepare ASEAN better for the future. In this regard, the initiatives proposed in the Bali Concord II for establishing an ASEAN community, particularly the ASC, provide a timely impetus that may kick-start new measures to enhance ASEAN’s capacity to manage security comprehensively, among them cooperation and the coordination of efforts to fight terrorism and other transnational crime, strengthening cooperation and regional capability to conduct joint patrol and surveillance to enhance maritime security, and the possibility of undertaking peacekeeping operations (ASEAN 2003c). Indeed, these initiatives for a security community complement the idea of promoting an ASEAN economic community – another blueprint that contains ‘bold’ measures to push and transform ASEAN beyond its informal mechanisms. Taken together, these are positive signs that ASEAN is an active, rather than a sunset, organization. Although the challenge of reconciling state-centric and regional interests and norms will remain crucial to the future of regional stability, the ASEAN story shows that there has been scope for accommodation and improvement. It is through deepening and widening cooperation that ASEAN can best be equipped to deal with future exigencies.

Notes 1 In this study, East Asia refers to a broad region comprising the sub-regions of Southeast Asia, which includes the 10 member states of ASEAN (Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, Philippines, Thailand, Singapore and Vietnam), and Northeast Asia, which comprises China and Taiwan, Japan and South and North Korea. Moreover, for ease of reference, Southeast Asia will be referred to as ASEAN. 2 This section draws on an earlier paper by the author (Caballero-Anthony 2003). 3 For an excellent account of ASEAN’s concept of comprehensive security, see Alagappa 1998.


4 These major conflicts were, in fact, stumbling blocks to earlier efforts to form a regional association and became the major reasons why the first two attempts to establish the Association of Southeast Asia (ASA) in 1961 and MAPHILINDO in 1963 failed. For accounts on earlier attempts to form a sub-regional organization in Southeast Asia, see, for example, Jorgensen-Dahl 1982, Leifer 1989 and Antolik 1990. 5 The ARF comprises the ASEAN 10 (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam), ASEAN’s dialogue partners (Australia, Canada, China, the European Union, India, Japan, South Korea, New Zealand, Russia and the United States), plus Papua New Guinea and Mongolia and, since July 2000, North Korea. 6 In this section, the discussion on challenges facing ASEAN will take up the larger part of the analysis. While this is not meant to privilege ASEAN over the ARF, most of the challenges that have emerged have had a direct impact on ASEAN. 7 For a detailed account of ASEAN’s initiatives to get Cambodia to agree to its terms to restore political stability in the country, see Jarasa 1999. 8 There have been numerous accounts of ASEAN’s concerted response to the currency crisis. See, for example, Soesastro 1998 and Funston 1998. 9 This idea was later on expanded within the ASEAN+3 (APT) framework with the establishment of the APT early warning systems. See ADB 2002: 24. 10 AFTA requires member states to reduce tariffs on a wide range of products to below 5 per cent. AFTA was fully implemented by Malaysia, Singapore, Indonesia, the Philippines and Brunei in 2003. The newer members will implement AFTA later – Vietnam in 2006, Laos and Myanmar in 2008 and Cambodia in 2010. 11 For more detailed discussion on the East Timor crisis, see Martin 2001 and Sebastian and Smith 2000. 12 Anwar Ibrahim’s proposal of constructive intervention, which was introduced within the context of the 1997 Cambodian crisis, outlined four essential points, namely: direct assistance to firm up electoral processes; increased commitment to legal and administrative reform; development of human capital; and the general strengthening of civil society and the rule of law. It should be noted that other than the specific proposal of strengthening civil society, the rest of the proposals seemed no different from the existing ASEAN practices for helping its members. 13 For more discussion on re-inventing ASEAN, see Tay et al. 2003.

References Acharya, Amitav (1997) ‘Ideas, Identity and Institution Building: From the ASEAN Way to Asia Pacific Way’, Pacific Review, 10: 2. –––– (1999) ‘Realism, Institutionalism and the Asian Economic Crisis’, Contemporary Southeast Asia, 21: 1. –––– (2000) The Quest for Identity: International Relations in Southeast Asia, Singapore: Oxford University Press. –––– (2001) Constructing a Security Community: ASEAN and the Problem of Regional Order, London: Routledge. ADB (Asian Development Bank) (2002) Asian Economic Monitor ( July). Alagappa, Muthiah (1998) ‘Comprehensive Security: Interpretations in ASEAN Countries’, in Robert A. Scalapino, Seizaburo Sato, Jusuf Wanandi and Han Sung-joo (eds) Asian Security Issues Regional and Global, Berkeley CA: Institute of East Asian Studies, University of California: 50–78.


Antolik, Michael (1990) ASEAN and the Diplomacy of Accommodation, Armonk NY: M.E. Sharpe. ASEAN (1986) ASEAN Joint Statement on the Situation in the Philippines, Jakarta, 23 February. Available at www.aseansec.org/2477.htm –––– (1995) The ASEAN Regional Forum: A Concept Paper, Bandar Seri Begawan, 1 August. –––– (2001) ASEAN Declaration on Joint Action to Counter Terrorism, Bandar Seri Begawan, 5 November. –––– (2002a) Joint Communiqué of the Special ASEAN Ministerial Meeting on Terrorism, Kuala Lumpur, Malaysia, 20–21 May. –––– (2002b) Chairman’s Statement of the 8th ASEAN Summit, Phnom Penh, Cambodia, 4 November. –––– (2003a) Joint Statement of the Special ASEAN + 3 Health Ministers Meeting on Severe Acute Respiratory Syndrome (SARS), Siem Reap, Cambodia, 10–11 June. Available at www.aseansec.org/14824.htm. –––– (2003b) Joint Communiqué of the 36th ASEAN Ministerial Meeting, Phnom Penh, 16–17 June. –––– (2003c) Declaration of ASEAN Concord II (Bali Concord II), Bali, Indonesia, 7 October. Available at www.aseansec.org. Bangkok Post (2003) ‘ASEAN Calls for Release of Suu Kyi’, 18 June. Buszynski, Leszek (1997–98) ‘ASEAN’s New Challenges, Pacific Affairs, 70: 4 (Winter). Caballero-Anthony, Mely (1999) ‘Mechanisms of Dispute Settlement: The ASEAN Experience’, Contemporary Southeast Asia, 20: 1 (April): 38–66. –––– (2003) Regionalization of Peace in Asia: Experiences and Prospects of ASEAN, ARF and UN Partnership, IDSS Working Paper No. 42, Singapore: Institute of Defence and Strategic Studies. Desker, Barry (2002) Islam and Society in Southeast Asia After September 11, IDSS Working Paper No. 3, Singapore: Institute of Defence and Strategic Studies. Economic Intelligence Unit (2002) Country Reports 2000 (selected Southeast Asian countries), London. Far Eastern Economic Review (2003) ‘The Cost of SARS: US$11 Billion and Rising’, 24 April. Funston, John (1998) ‘ASEAN: Out of its Depth’, Contemporary Southeast Asia, 20: 3: 22–37. Garofano, John (1999) ‘Flexibility or Irrelevance: Ways Forward for the ARF’, Contemporary Southeast Asia, 21: 1: 74–94. Goh Chok Tong (1999) Speech to the Asian Society, Sydney, Australia, 2 March. Haacke, Jürgen (1999) ‘The Concept of Flexible Engagement and the Practice of Enhanced Interaction: Intramural Challenges to the ASEAN Way’, The Pacific Review, 12: 4. Hafidz, Tatik S. (2002) The War on Terror and the Future of Indonesian Democracy, IDSS Working Paper No. 46, Singapore: Institute of Defence and Strategic Studies. Henderson, Jeannie (1999) Reassessing ASEAN, Adelphi Paper 323, London: Oxford University Press for IISS. Hernandez, Carolina (2000) ‘ASEAN 10: Meeting the Challenges’, in Mely Anthony and Jawhar Hassan (eds) Beyond the Crisis: Challenges and Opportunities, Kuala Lumpur: Institute of Strategic and International Studies. International Herald Tribune (2003) ‘ASEAN Presses Burma to Ease Crackdown’, 17 June.


Jakarta Post (2003a) ‘Indonesia Proposing ASEAN Security Community Concept’, 16 June. Available at www.thejakartapost.com. –––– (2003b) ‘Observers Praise ASEAN’s New Policy to Myanmar’, 19 June. Jarasa, Juanito (1999) ‘The ASEAN Troika on Cambodia: A Philippine Perspective’, in Desmond Ball and Amitav Acharya (eds) The Next Stage: Preventive Diplomacy and Security Cooperation in the Asia-Pacific, Canberra: Strategic and Defence Studies Centre, Australian National University: 209–214. Jorgensen-Dahl, Arfinn (1982) Regional Organization and Order in Southeast Asia, New York: St Martin’s Press. Leifer, Michael (1989) ASEAN and the Security of Southeast Asia, London: Routledge. –––– (2001) ‘Regionalism Compared: The Perils and Benefits of Expansion’, in Mely C. Anthony and Jawhar Hassan (eds) The Asia Pacific in the New Millennium, Kuala Lumpur: Institute of Strategic and International Studies. Martin, Ian (2001) Self-Determination in East Timor. International Peace Academy Occasional Paper Series, Boulder, CO: Lynne Rienner. New Straits Times (1998) Issue of 15 October. Pitsuwan, Surin (2002) ‘Regional Efforts in Peace Operations’, address delivered at the Wilson Park Conference, Wilson Park, Essex, 2 July. Ramchara, Robin (2000) ‘ASEAN and Non-Interference: A Principle Maintained’, Contemporary Southeast Asia, 22: 1 (April). Rüland, Jürgen (2000) ‘ASEAN and the Asian Crisis: Theoretical Implications and Practical Consequences for Southeast Asian Regionalism’, The Pacific Review, 13: 3: 421–451. Sebastian, Leonard and Smith, Anthony L. (2000) ‘The East Timor Crisis: A Test Case for Humanitarian Intervention’, Southeast Asian Affairs 2000, Singapore: Institute of Southeast Asian Studies: 64–83. Severino, Rodolfo (2000) ‘Sovereignty, Intervention and the ASEAN Way’, address delivered at the ASEAN Scholars’ Roundtable, Singapore, 3 July. –––– (2002) ASEAN Today and Tomorrow, Jakarta: ASEAN Secretariat. Soesastro, Hadi (1998) ‘ASEAN during the crisis’, ASEAN Economic Bulletin, 15: 3 (December). Straits Times (2003) ‘ASEAN Wants Suu Kyi Free’, 16 June. Tan See Seng, Emmers, Ralf, Caballero-Anthony, Mely, Desker, Barry and Acharya, Amitav (2002) A New Agenda for the ASEAN Regional Forum, Monograph no. 4, Singapore: Institute of Defence and Strategic Studies. Tay, Simon (2001) ‘The Environment And Security in Southeast Asia’, in Mely C. Anthony and Mohamed Jawhar Hassan (eds) Beyond the Crisis: Challenges and Opportunities, Malaysia: Institute of Strategic and International Studies. –––– (2003) ‘The Relevance of ASEAN: Crisis and Change’, in Simon Tay, Jesus Estanislao and Hadi Soesastro (eds) Reinventing ASEAN, Singapore: Institute of Southeast Asian Studies. ––––, Estanislao, Jesus and Soesastro, Hadi (eds) (2003) Reinventing ASEAN, Singapore: Institute of Southeast Asian Studies. US Department of State (2002) ‘Joint Declaration for Cooperation to Combat International Terrorism (with ASEAN)’, 1 August.

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Part VII

Conclusions

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15 Regional integration in Europe and Asia A historical perspective Douglas Webber

Introduction Few concepts or phenomena have so captured the attention of social scientists and citizens alike in recent times as ‘globalization’. However, regionalization, the intensification of interactions across the borders of geographically proximate states, has been at least as much a trait of the post-cold war period as globalization. In case of doubt, regionalization has actually been the more powerful of the two processes. Relative to overall trade, intra-regional trade has been growing in most of the world’s economically significant regions during the last two decades (see Table 15.1). Regional trade agreements have proliferated. Of some 176 such agreements in force in 2002, four-fifths had been negotiated since 1990 alone (WTO 2003: 46–47). Parallel to this trend, more and more regional organizations with varying levels of political ambition have been founded, and pre-existing regional organizations, such as the EU and ASEAN, have adopted new political projects whose implementation implied the realization of qualitatively higher levels of inter-state cooperation. Many of the relatively new regional organizations and many of the new integration projects launched by the more ‘venerable’ ones originated in the first half of the 1990s. With the benefit of hindsight, however, this period looks increasingly like the ‘golden age’ of regionalization. Since then, most regional organizations have been buffeted by more or less profound crises. The prospects for closer regional political integration seem almost everywhere to be more uncertain now than was the case less than a decade ago. Moreover, if political regionalization or regional political integration, defined as the growing coordination of public policies by geographically proximate states, is a powerful international process, its occurrence is nonetheless still very uneven. Scholars may not necessarily agree on how to measure ‘political integration’. However, all would undoubtedly concur that public policies are coordinated more intensively in more issue areas in Western Europe than in any other region and that Western Europe is therefore the world’s politically most highly integrated region. Certainly, the EU devotes far more resources – human as well as financial – to this task than ASEAN, one of the oldest regional organizations

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and reputedly, except for the EU, the ‘most extensively institutionalized’ (Chin Kin Wah, quoted in Henderson 1999: 24) (see Table 15.2). The primary purpose of this chapter, whose empirical focus is mainly on Europe and East, including Southeast, Asia, is to explore and to explain inter-regional variations in levels of regional political integration. It will be argued that the principal existing theories of regional political integration are of very limited use when it comes to explaining interregional variations Table 15.1 Economic interdependence and regional political integration (intra-regional trade as a percentage of total trade) Region/Regional organization

1980

1990

2000

European Union1 ASEAN2 East Asia3 APEC NAFTA MERCOSUR FTAA

60.8 17.4 41.9 57.9 33.6 11.6 43.4

65.9 19.0 47.5 68.4 41.4 8.9 46.6

61.2 22.4 51.3 72.5 54.8 20.8 60.1

Sources: UNCTAD Handbook of Statistics; IMF, Direction of Trade Statistics (East Asia), as published in Shin Kwanho and Yunjong Wang (2002). 1 The EU expanded to include Greece in 1981, Spain and Portugal in 1986 and Austria, Finland and Sweden in 1995. 2 ASEAN expanded to include Brunei in 1984, Vietnam in 1995, Laos and Myanmar in 1997 and Cambodia in 1999. 3 East Asia here includes China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand.

Table 15.2 The EU and ASEAN: a comparative overview Organization

No. of policy-making organs1

No. of sessions of policy-making organs

Professional staff

Budget

EU

6932

2,8874

4,6826

€93 billion (1.1% of EU GDP)

ASEAN

1693

645

99

n.a.

Sources: Wessels (1997) and ASEAN Secretariat (various years). 1 Figures for 1994. 2 No. of ministerial councils, council working groups and committees attached to the Commission, 1994–96. 3 No. of ministerial councils, committees of senior government officials and technical working groups, 1999. 4 No. of meetings of ministerial councils, COREPER (Committee of Permanent Representatives, permanent ambassadors) and COREPER working groups, 1994. Total number of translated council and commission meetings 1995: 10,647. 5 No. of ministerial meetings, meetings of committees, sub-committees and technical working groups, other meetings of government officials, 1994. 6 Figure for 1994.

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in levels of political integration and that although they were developed very much with reference to Western Europe, they fail notably to account for the specificity of the European case, that is, for the ‘exceptional’ level of European integration. The roots of the latter are traced back to the specific combination of factors – the international political constellation, the inter-state distribution of power in the region, and domestic political conditions in France and Germany – that prevailed in Western Europe in the early 1950s. Because the conditions that fostered West European integration were so specific, it is very unlikely, it is argued, that other regions will integrate as closely politically as Western Europe has done. Indeed, it is by no means certain that current levels of political integration in (Western) Europe will be able to be maintained, let alone be extended.

Regional integration theories and inconvenient integration realities If the propositions of existing regional integration theories are reduced to their essence, it does not do too much violence to most of these theories to classify them in one or the other of two basic schools.1 One theoretical ‘school’ views regional political integration as a fundamentally market-driven process. According to this school, levels of political integration vary by issue area and, by implication, by region, according to the intensity or volumes of transnational exchange (Stone Sweet and Sandholtz 1997 and 1998). Transnational, i.e. cross-border, exchange refers primarily to trade, investment, production and distribution, i.e. to economic activity, but may also refer to cross-border political activity, as manifested in the formation of regional groups, networks and associations (Stone Sweet and Sandholtz 1998: 2). Referring to Europe, two leading proponents of this strand of integration theory thus argue that: Increasing levels of cross-border transactions and communications by societal actors will increase the perceived need for European-level rules, coordination and regulation . . . As transnational exchanges rise, so does societal demand for supranational rules and organizational capacity to regulate . . . Governmental actors . . . may resist the shift toward supranational policymaking. But . . . such resistance is . . . sustainable only at a cost in prosperity. They can also attempt to slow integration or push it in directions favorable to their interests, but they do not drive the process nor fully control it. In a fundamental sense, governments are reactive, constantly adjusting to the integration that is going on all around them. (Stone Sweet and Sandholtz 1998: 11–12) For this school of integration theory, which I label transactionalist, regional political integration is ultimately about economics. At the end of the day,

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governments – national governments at least – are the handmaidens of transnational business interests, whose decisions or non-decisions are crucial for countries’ economic development, which in turn determines national governments’ prospects for political survival. In the second main school of regional theory, intergovernmentalism, by contrast, integration is a politically driven process. Intergovernmentalism has its roots in realist and neo-realist traditions of international relations theory. Intergovernmentalists may differ as to the motives – security- or prosperityrelated – that shape the stances of national governments on issues of regional political integration. But it is implicit, if not always explicit, in all intergovernmentalist analysis that national governments possess some – and normally a great deal of – autonomy from their domestic constituencies. The scope and pace of regional integration depends on the stance of the most powerful state in the region or the degree of convergence of the preferences of the ‘largest’ or ‘most powerful’ states. Hegemony and hegemonic powers occupy the central role in intergovernmentalist-informed theorizing about regional integration. Their existence is a necessary condition of real (as opposed to proposed) regional political integration – whereby intergovernmentalists may diverge on the issue as to whether such integration depends on there being a single hegemon or whether it is also possible under a bi- or tripolar intra-regional distribution of power.2 Individual theorists may combine elements of both theoretical schools to try to explain inter-regional variations in integration levels, as in the case of Walter Mattli (1999). Mattli distinguishes between ‘demand’ and ‘supply’ conditions of regional integration. By far the most important ‘demand’ condition he argues, similarly to transactionalist theorists, is ‘strong market pressure for integration’, which is contingent on the existence of ‘significant’ potential for economic gains from intra-regional exchange (Mattli 1999: 42). The critical ‘supply’ condition of integration is ‘undisputed leadership’ (Mattli 1999: 43). Successful integration presupposes that the regional hegemon leads ‘benevolently’, not only providing a ‘focal point in the coordination of rules, regulations, and policies’ but also serving as a kind of regional paymaster, easing ‘tensions that arise from the inequitable distributions of gains from integration’ (Mattli 1999: 42). Neither transactionalist theory with its focus on the regionalization of economic exchange nor intergovernmentalist theory with its emphasis on the primacy of politics and the indispensability of hegemonic leadership provides a very satisfactory explanation of existing inter-regional variations in regional integration levels. Hitherto, no scholar of comparative regional integration has attempted to develop a comprehensive set of empirical indicators of integration levels in different regions, let alone succeeded in developing a credible such set. Any such set, however, would have to distinguish between the ‘breadth’ of integration, by which I mean the range of issue areas across which inter-state policy coordination occurs, and the ‘depth’ of integration, by which I mean the extent to which states


have pooled rule-making and adjudication powers and/or delegated them to central regional, i.e. supranational, organs. A consensus over relative breadths of political integration would be easier to achieve than a consensus over relative depths. Among the regional organizations in Europe, East Asia and the Americas, the EU indisputably constitutes the most broadly as well as deeply politically integrated entity. Of the non-European ones (ASEAN, APEC, NAFTA and MERCOSUR – Common Market of the South), ASEAN, which, for example, has spasmodically tried, with varying success, to coordinate member states’ foreign policies, may be more ‘broadly’ integrated than the other organizations, which focus more exclusively than ASEAN on trade-related issues. The differences between the four organizations in terms of the ‘depth’ of integration may not be very substantial. Of the four, all but APEC have agreed and largely implemented free trade area projects and MERCOSUR is also an – ‘imperfect’ – customs union (i.e., in addition to a free trade area, it has a common external tariff ) (Perales 2003: 90; see also Malamud 2003: 54–57 and Oelsner 2003: 197). The scope of trade liberalization is greater, however, in the NAFTA and MERCOSUR than ASEAN, which has yet to liberalize intra-regional trade in services. Overall, although APEC may be significantly less broadly and deeply integrated than the other three organizations, all four probably lie closer to one another in terms of integration breadth and depth than does any one of them to the EU, which, also certainly relative to other regional organizations, constitutes a deviant, outlying case. This pattern of levels of regional political integration diverges strongly from what one would predict if, as transactionalist theory claims, levels of regional political integration follow those of cross-border exchange. In this case, APEC would be the most strongly integrated regional organization rather than probably the most weakly integrated, Western Europe would not be significantly more strongly integrated than North America or East Asia, and there would be much less political integration in Southeast Asia than in North America or in the Asia Pacific (see Table 15.1). Transactionalist theory suffers from a surplus of ‘Euro-centrism’. The stark contrast between the real inter-regional pattern of political integration and the pattern that transactionalist theory would predict suggests that if there is any causal relationship between levels of cross-border exchange and political integration, it is at best weak and tenuous. Moreover, even if these two variables are causally interrelated, it is by no means certain that growing levels of cross-border exchange ‘cause’ closer political integration rather than vice versa. Thus, the first stage in the European integration process – the European Coal and Steel Community (ECSC) – was launched in the early post-Second World War period, when levels of economic interdependence between the Western European states were still very low. The ECSC project was motivated partially by France’s interests in securing supplies of German coal for its iron and steel industry,

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but wider security-related concerns were at least as important as these more mundane motives. Moreover, the project was initially opposed by most of the trade associations of heavy industry in the Benelux states and France. In this sense, the ‘market pressures’ were not for, but against, regional integration. In the Western European case, the trend toward closer political integration preceded and may have helped to pave the way for growing economic interdependence. Sectoral integration as promoted by the ‘co-father of Europe’, Jean Monnet, was a technique to further a larger political agenda more than a market-led process that set this agenda. Similarly, in Southeast Asia, support from business constituencies within the ASEAN member states for regional political integration has been weak, and the strongest ‘market pressures’ for closer integration have been exerted by external – namely Japanese and American – business interests (Severino 2002: 4 and 2003: 4; Gill 1997: 157–169). Transactionalist theory’s incapacity to account for interregional variations in levels of political integration suggests that, as realist or intergovernmentalist theorists argue, the determinants of integration are fundamentally political rather than economic. But are variations in political integration a function of different inter-state distributions of power, specifically of the presence or absence of regional ‘hegemons’? Power in international relations may have several dimensions, including military capacity, technological prowess, wealth and economic size, and external cultural or ideological appeal, whose relative significance may vary according to the international political conjuncture. Relative wealth and economic size, however, are the most basic and stable ingredients of power: in any given region, other things being equal, states with large and rich economies have a bigger capacity to exercise power than others.3 Following realist or intergovernmentalist theory, one might expect levels of political integration to vary according to the degree to which the regional economy is dominated by a single state. As realist theorists occasionally acknowledge, however, there seems to be hardly any correlation at all between levels of regional economic ‘hegemony’ and levels of regional political integration (Grieco 1997: 173–75). If there were, relative to other regions, Western Europe would be politically much less rather than much more closely integrated and Southeast Asia would also be much less integrated than East Asia as a whole, the Asia-Pacific region or North or South America (see Table 15.3). If anything, capacities for hegemonic leadership and levels of political integration appear to be negatively correlated – regional political integration thrives where hegemonic leadership capacities are weakest. The divergence between the actual inter-regional pattern of political integration levels and the pattern that one would anticipate based on rudimentary realist or intergovernmentalist theories has motivated the realist scholar Grieco to try to develop a more subtle and differentiated explanation of comparative regional integration levels (Grieco 1997: 175–185). In this account, variations in political integration levels are attributed to


Table 15.3 Hegemonic leadership capacity and regional political integration Regional organization and ‘hegemon’

Hegemon’s percentage of regional GDP, 1999

European Union (Germany) ASEAN (Indonesia) ASEAN+3 ( Japan) APEC (US) NAFTA (US) MERCOSUR (Brazil)

25 26 69 51 89 71

inter-state shifts in relative power disparities: to the extent that such shifts exacerbate pre-existing disparities in the distribution of intra-regional power, ‘disadvantaged states will become less attracted’ to political integration, which will therefore become ‘less likely to occur’ (Grieco 1997: 176). This explanation of variations in political integration levels in fact turns the standard realist or intergovernmentalist logic on its head, by associating growing hegemonic leadership capacities with growing resistance to regional integration and attributing a critical role in shaping integration trends not to hegemonic but rather to ‘subordinate’ or weaker states. Unfortunately, this modified realist explanation of comparative regional integration is also hard to reconcile with recent integration trends in Europe and East Asia. German reunification and the prospect of a more powerful Germany precipitated an acceleration of the European integration process rather than slowing it down or stopping it in its tracks. Grieco’s analysis would fit East Asia if the recent growth of interest in closer regional integration (ASEAN+3) were attributable to diminishing fears of economic domination by Japan. However, this agenda has been fuelled much less by diminishing fears of Japanese hegemony in the region than by perceptions that an increasingly powerful China must be embedded more tightly in a regional institutional framework. Small, ‘weak’ or ‘subordinate’ states may nonetheless have more freedom of choice and a stronger influence on regional integration trends than standard realist or intergovernmentalist theory acknowledges. After the Second World War, some 13 non-Communist Asian states rebuffed an American proposal that they establish a regional organization that involved Japan and was akin to the OECD (which dispensed Marshall Plan aid in Europe), for fear that they would fall (again) under Japanese or joint Indian-Japanese domination (Henderson 1955: 472–73; Grieco 1998: 249–251). More recently, the (majority of ) ASEAN states resisted pressures to increase the powers and scope of APEC for fear of marginalization in a trans-Pacific organization encompassing the economic ‘great powers’, Japan and the US. In Europe, of course, the comparatively very wealthy small states Switzerland and Norway have been able to resist (de jure) absorption into the EU, and among the small EU member states,

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Denmark, for example, has been strikingly successful in pursuing a strategy of integration à la carte. What applies for smaller or weaker states applies all the more for prospective or putative regional hegemons. Such states may have the capacity to provide regional leadership, but precisely because they are more or even much more powerful than other states in the neighbourhood, what incentives do they have to exercise their power multi- rather than bi- or even unilaterally, let alone ‘benevolently’, and thereby accept the constraints that may be imposed on their freedom of action by the obligations of membership in a regional organization? They may have an incentive to do so when the regional organization can serve as a vehicle for the enhancement or expansion of their influence on regional affairs. In this case, however, the smaller states in the region will fear that they will be the ‘losers’ of closer political integration and may therefore oppose it. Recognizing this lacuna in realist-intergovernmentalist analysis of regional integration processes, Pedersen has argued that regional political integration is the product of the strategy of ‘cooperative hegemony’ pursued by ‘comparatively weak or declining’ big powers (my emphasis) (Pedersen 2002). No less ‘Euro-centrist’ than transactionalism, this approach is also too exclusively informed by the historical role played by Germany in the European integration process.4 If one looks beyond Europe, there are no clear-cut cases of regional integration having been fostered by the strategies of ‘comparatively weak or declining big powers’. If in East Asia Japan has adopted a more positive stance towards regional integration in recent years, this is more closely related to its fears concerning the stability of the international multilateral trading system than to its relative economic decline. In any case, East Asia’s rising power, China, has supplied more momentum to regional integration initiatives since the late 1990s than has Japan. The preceding remarks indicate that to explain variations in levels of regional political integration, the most critical task may be to identify the circumstances under which (actual or prospective) hegemonic states and (actual or prospective) subordinate states can agree mutually acceptable terms of integration, something akin to a ‘founding settlement’. I shall argue here that the conditions under which hegemonic and subordinate states are likely to reach a compromise that facilitates close regional political integration are quite restrictive. These conditions have been met in Western Europe. But they have never been met elsewhere, it is fairly unlikely that they will be and it is by no means certain that they will continue to be met in Europe either.

Why is (Western) Europe relatively highly politically integrated? The other thorny issue that confronts theorists trying to analyse the role of hegemony or the inter-state distribution of power in determining levels


of regional political integration relates to the definition of hegemony. How do we actually recognize a hegemonic power when we see one? Germany is commonly regarded as the hegemonic state in the EU. In what way Germany is the European hegemon, however, is not always made explicit. Clearly, albeit with growing displeasure since German reunification, Germany has played the role of ‘regional paymaster’, making much higher net contributions to the EU budget in absolute terms than any other member state. But the empirical evidence that it has provided the ‘focal point’ for inter-state policy coordination à la Mattli is much less clear-cut. According to one analysis of voting patterns in the Council of Ministers in the late 1990s, no member state was outvoted as frequently as Germany (European Voice 1998). This finding alone, should it be valid, may not suffice, however, to refute the thesis that Germany is the EU’s hegemonic state. Alternatively, it may be argued that the defining trait of a hegemon is its capacity to shape a particular sub-set of the regional organization’s decisions, namely those that define the ‘rules of the game’, i.e. in the European context, in particular decisions (or non-decisions) relating to the EU treaties. The claim that Germany has had a strong influence on the outcome of EU treaty negotiations stands up better to empirical scrutiny than the argument that it provides a general or universal policy coordination focal point. Even on this issue, however, there is a divergence between the two basic strands of regional integration theory. Moreover, the mainstream intergovernmentalist view, as expounded by Moravcsik, is that the ‘grand bargains’ in the history of the European integration process have been bi- or trilateral, i.e. apart from Germany, they have involved France and, after its entry, the UK, rather than unilateral, i.e. determined by a German regional hegemon (Moravcsik 1998). Finally, it may be argued that German hegemony is not expressed at all in the Brussels policy process as such but in the fact that, by its very existence as a single market, the EU guarantees German firms more or less unhindered access to the markets of other member states in trade with most of which it maintains steady trade surpluses. In this analysis, regular defeats suffered or concessions made by Germany are the price it pays to maintain and promote an open regional economic and stable regional political environment from which it benefits disproportionately compared with other member states. The thrust of the preceding discussion underlines the diffuseness of the discussion about the dimensions or nature of German hegemony or influence in the EU. Loose claims that German is a hegemonic power in the EU should not be taken at face value. The view that Germany somehow dominates the EU does not command unanimity among EU scholars. Siedentop, for example, argues that, far from being dominated by Germany, the EU is a ‘French creation’ and the major integration initiatives in the EU’s history ‘have been French and have served French interests’ (Siedentop 2000: 115). Not the Germans but on the contrary

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‘in important respects the French have been taking over Europe’ (Siedentop 2000: 115). Rather than playing the role of the regional hegemon, Germany has ‘cooperated or acquiesced in what is basically a French design’. For Siedentop, the former French president, de Gaulle, hit the nail on the head when he remarked that in the EU ‘Germany was the horse, while France was the coachman driving the carriage’ (Siedentop 2000: 139–140). Trapped in the logic of conventional realist theory, which denies the possibility of relatively stable bi- or tripolar as opposed to hegemonic leadership by a single state in multilateral organizations, proponents of the notion that Germany (or France) constitutes a hegemonic power in the EU miss the central points that (1) joint Franco-German leadership has prevailed over either German or French hegemony in the EU and (2) Franco-German compromises, as most agreements between Paris and Bonn/Berlin have been, have typically also accommodated the interests of the smaller member states. Understanding how and why the French and German governments came to cooperate so intensively in the ‘construction’ of ‘Europe’, but in a way that incorporated the interests of smaller neighbouring states and integrated them into this process, is critical to explaining why Western Europe became a politically much more highly integrated region than any other. An analysis of the origins of the European integration in the early post-Second World War period, when the foundations for the later, path-dependent evolution of this process were laid, underscores the specificity, in both a geographical and temporal sense, of the circumstances that facilitated the ‘founding settlement’. How and why did Western Europe’s ‘founding settlement’, the agreement to create the ECSC, come about? First, the nature of the international political constellation in the late 1940s and early 1950s was important. The cold war, which intensified with the outbreak of the Korean War just a few weeks after the Schuman Declaration, made the economic reconstruction and rearmament of West Germany increasingly imperative for the defence of Western Europe. In the tradition of French diplomacy reaching back to the seventeenth century, and not surprisingly in view of the three wars with Germany that had taken place during the preceding 80 years, French policy towards Germany in the immediate aftermath of the Second World War had been aimed at preventing the re-emergence of a strong central German political authority and curbing or at least controlling Germany’s economic resurgence through the organs of the Allied Occupation authorities. As the cold war intensified, this policy grew increasingly untenable, as the other Western allied powers, the US and the UK, insisted on accelerating West Germany’s economic, political and military reconstruction and its transformation into a bulwark against the expansion of Soviet Communism. Given France’s strong dependence on US financial aid (Marshall Plan!), the French government would have


found it increasingly difficult to resist these pressures. There was thus a growing risk that France would find itself having again to co-exist with an economically and militarily ‘resurrected’ (West) German state, uncertain whether in the future German power might once again be deployed against France rather than towards containing Soviet expansionism. The Truman administration in the US implored its counterpart in Paris to take an initiative to ‘bind’ West Germany into Western Europe while there was still time. With the Schuman Plan, the French government of the day pursued several goals, including securing adequate supplies of German coal for the French iron and steel industry (Herbst 1989: 80; Loth 1990: 82). Most fundamentally, however, the purpose of the ECSC was to create such strong ‘organic bonds’ between Germany and its West European neighbours that ‘no [future] German government could break them’ and in particular coalesce with the Soviet Union against France and the West as previous German governments had done, notably at Rapallo in the 1920s and in the Hitler-Stalin Pact (Schuman 1953: 352; see also Monnet 1976: 385, 393, 415). Second, the asymmetrical distribution of power between France and Germany at the time was important. The Schuman Plan was not about integrating an already existing ‘hegemonic’ Germany, but rather a prospective future hegemon into a wider grouping of West European states. As one of the Allied powers involved in the occupation and post-1945 administration of West Germany, France could negotiate with the new West German government from a position of strength. Burdened politically, diplomatically and morally by Germany’s responsibility for two world wars within a generation and the Holocaust, occupied, deprived of its sovereignty, and unable or at least tightly constrained in its capacity to pursue an independent foreign policy, the West German government was bound (initially) to be the junior partner in the trans-Rhine relationship. Participation in a French-led European integration process offered West Germany the prospect of gaining re-entry into the international community and international respectability and exercising greater influence over its destiny than under the status quo: sharing sovereignty with other states in a multilateral organization was for West Germany a gain rather than a loss. Moreover, in the same way that West European integration offered France the prospect of forestalling any fresh German-Soviet coalition, so it also offered West Germany, in the view of the chancellor, Adenauer, the prospect of pre-empting any Franco-Soviet coalition directed against Germany and – the nightmare of West Germany’s post-Second World War foreign policy elite – the Federal Republic’s possible diplomatic encirclement (Einkreisung) or isolation (Schwarz 1992: 41, 92). The actual and perceived asymmetrical distribution of power between France and Germany in the early post-Second World War period is reflected in the German foreign policy dictum, which survived right down

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until German reunification if not later, but dates back to this era, that ‘we [Germans] should not take any step without France, we must give it the precedence to which it is entitled’ (Schmidt 1990: 297).5 Politically, in the early 1950s West Germany was akin to a much smaller state, more a ‘taker’ than a ‘maker’ of European integration. To assess the significance of this asymmetrical distribution of power between France and Germany for the early development of the European integration process one has to ask whether, if the balance of power in the bilateral relationship had been much more disadvantageous to France, the French government would not have feared that the terms of integration would turn out to be much more unfavourable to France and refrained from launching the ECSC project. Very likely it would have. If it had not seized the initiative, however, the integration process would equally likely not have got off the ground. Politically, for the reasons cited above, it would hardly have been possible for West Germany to launch such an initiative. Theoretically, the Benelux states could have sponsored the integration project. But without France would the Benelux states have been prepared to integrate with Germany? As France did in fact launch the ECSC project, we of course cannot answer this counterfactual question with certainty. However, the importance that the Benelux states were later to attach to the UK’s participation in the integration process suggests strongly that they would have shied at the prospect of entering a ‘small’ European community that included Germany but excluded France. Almost certainly, the presence of France as a ‘counterweight’ to West Germany (and arguably also vice versa) greatly facilitated the Benelux states’ participation in the integration process, the more so to the extent that France and West Germany represented ‘the opposed poles of the Community’, around one or the other of which on many issues most of the initial member states would congregate (Couve de Murville 1971: 262). This points to a third factor that contributed to and shaped this process: the fact that France and Germany formed two ‘poles’ within the European community – reciprocal counterweights, whose joint membership, by diminishing fears that the smaller states otherwise would have had about succumbing to domination by a single hegemonic power, facilitated their participation in the integration process. The fourth condition of the launching of European integration in the (very) early 1950s was the constellation of domestic politics in France and Germany. In this phase of the French Fourth Republic, the ascendancy of the relatively ‘pro-European’ political movements – Socialists, Radicals (centre-left) and the Christian Democratic MRP (Mouvement Républicain Populaire) – created a brief window of opportunity for initiatives such as the ECSC project. The most pro-European of these parties, the MRP, Schuman’s party, was the ‘fulcrum’ of French parliamentary politics during the Fourth Republic (Irving 1979: 217). It provided several prime ministers during this period and the foreign minister continuously from 1945 to 1954.


Schuman’s scope for launching the ECSC project was actually enlarged after the less pro-European Socialists withdrew from the French government in February 1950 (Loth 1990: 82). This window of opportunity was to narrow when the ‘anti-European’ Communist and Gaullist parties made big overall gains in June 1951 elections and expanded again, with positive repercussions for the adoption of the Treaty of Rome, when the Socialist leader Mollet formed a new government early in 1956 (Herbst 1989: 164).6 In Bonn, the domestic political base for a strategy of ‘Western integration’ was also very unsteady at the beginning of the 1950s. The Rhinelander Adenauer – who was an unequivocal exponent of Germany’s Western integration and, only a few weeks before the Schuman Declaration, had proposed the creation of a ‘Franco-German union as the core of a United States of Europe’ – was elected chancellor in the German Parliament in 1949 by only one vote (Schwarz 1994: 700–701; Loth 1990: 80–81). The principal opposition party, the German Social Democratic Party (SPD), opposed Adenauer’s Western integration policy initially, as did the national-liberal Free Democratic Party (FDP) and influential figures in Adenauer’s Christian Democratic Union (CDU), mainly for fear that West Germany’s integration into Western Europe would render a future reunification of the two German states more difficult. It was only in the course of the 1950s that domestic opposition to Adenauer’s Western integration policy diminished and a broad pro-integration consensus developed in West German politics. The precariousness of the domestic political conditions of ‘prointegration’ policies in France and Germany in the early 1950s shows how contingent the birth of the integration process was. Even if the international political conjuncture – the intensification of the cold war and the consequent need to accelerate West Germany’s economic and military reconstruction – pointed towards the need to search for an ‘integrationist’ solution to the ‘German problem’, Western Europe’s ever closer political integration was not preordained at the beginning of the 1950s. Things could easily have turned out differently. If the ECSC had failed as well as the European Defence Community (EDC), the process of European integration might have been stillborn. It is likely that inter-state cooperation in Western Europe would have remained much more loosely institutionalized – more like that observable in the NATO, the GATT/ WTO or the OECD than in the contemporary EU – and today the level of political integration in Western Europe would probably have looked much more like levels in other regions. Already by the late 1950s, however, the integration process had struck roots that made it difficult to reverse. Fears that France would withdraw from the integration process when de Gaulle returned to power in France upon the collapse of the Fourth Republic in 1958 proved to be unwarranted, as the promise of a common European agricultural policy and with it German money to solve France’s ‘Algerian problem on its own soil’ persuaded many otherwise

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‘anti-European’ MPs to vote to approve the Rome Treaty in the French parliament (Dedman 1996: 103).7 De Gaulle did later try, most notably in a six-month boycott of the EU organs in 1965–66, to ‘draw’ the EU’s supranational ‘teeth’. He decided, though, to settle for less than a formal revision of the treaties when the 1965 French presidential elections appeared to show that French farmers did not appreciate his jeopardizing the integration process (Moravcsik 1998: 229). Nothing in the foregoing analysis explains, of course, why West European integration took the specific form it did, with the unique and critical role that, following the Treaty of Rome, came to be played by supranational organs such as the European Commission and the European Court of Justice (EC J).8 Although the Rome Treaty was less supranational in character than its Paris predecessor, the template for the institutional architecture that it contained was nonetheless supplied by the ECSC treaty (Küsters 1982: 199–200, 392). The supranational components in the ECSC treaty had been inserted at France’s insistence and reflected French concern that any looser form of inter-state cooperation, such as that the OECD represented, would not suffice to control West Germany and bind it to the West (Herbst 1989: 162, 82; Dedman 1996: 95). Ironically, in the light of subsequent conflicts, in which it took the opposite stance, France was the strongest supporter of ‘supranationalism’ in the negotiations over the ECSC, while the Benelux states wanted to maximize the member states’ powers (Herbst 1989: 77; Monnet 1976: 379, 420–421; Lovett 1996: 431–432). Once this architecture – the possibilities of which the supranational organs subsequently exploited vigorously – was enshrined in the treaties, however, it became very ‘sticky’, as the treaty could be revised only with the member states’ unanimous support (Pierson 1998). In this sense, the ‘founding settlement’ reached by the original six member states in connection with the ECSC in 1950–51 signposted the ‘path’ that the European integration process travelled over the following half century and that has ended – provisionally at least – in Western Europe becoming by far the world’s politically most highly integrated region. My argument so far is that levels of intra-regional exchange do not have a decisive effect on regional integration. High levels of intra-regional exchange are definitely not a sufficient condition of close political integration. Indeed it is not even certain that they are a necessary one. By contrast, the inter-state distribution of power in the region matters a great deal for regional political integration, but not in the ways that much realist or intergovernmentalist theorizing claims. The absence of any kind of regional hegemon, whether undisputed, benevolent or otherwise, may represent an insuperable obstacle to close regional political integration. But so too may an extremely unequal distribution of power. One reason for this may be that a state with a strong capacity for hegemonic leadership will not want to be bound by the constraints of regional multilateralism. The other may be that small, ‘subordinate’ states in regions where the


distribution of power is extremely unequal fear that close regional political integration will only exacerbate already existing power disparities. An analysis of the history of the European integration process suggests that the conditions for close political integration may be most favourable in regions where there is an ‘intermediate’ distribution of power or perhaps a ‘concert of powers’. Where regional leadership is divided or contested, competing prospective leaders arguably have a stronger incentive to accommodate the interests of smaller states than hegemonic states in regions where the distribution of power is unipolar and smaller states are more likely to feel uncomfortable about participating in political integration processes. The achievement of closer political integration presupposes, of course, that the states constituting the regional ‘poles’ can agree on the terms of integration. Historically, the rhythm of European integration has closely followed the capacity of the French and German governments to find common political ground (Webber 1999). The likelihood that rival regional ‘co-leaders’ will reach bargains that facilitate closer integration is greatest where and when they have powerful incentives to cooperate bilaterally. In Western Europe, this incentive was provided from the late 1940s to 1990 by the cold war and the Soviet Communist threat to the region’s security.

Why is East Asia politically less integrated than (Western) Europe? What light does the above analysis shed on the relative ‘underdevelopment’ of political integration in East Asia? In a nutshell it indicates that political integration in non-Communist East Asia was relatively very limited because after the Second World War the region had no more than half a Germany and above all because it had no France.9 The divergent paths of regional political integration in non-Communist East Asia and Europe cannot be attributed to variations in the international political constellation of the two regions. The non-Communist states in both regions were in the front-line of the worldwide conflict between the US-led West and the Communist bloc(s). If Katzenstein is correct that US strategy was to promote regional multilateralism in Western Europe but to cultivate bilateralism in its relations with the non-Communist states in East Asia the divergent integration outcomes may be at least partially attributable to the different regional strategies pursued by the US (Katzenstein 1996: 141–143). However, the Johnson administration strongly approved the creation of ASEAN in the 1960s and even claimed to have played a ‘critical role’ in bringing it about (official US government documents, cited in Mahapatra 1990: 75). Moreover, contrary to Katzenstein’s suggestion, the US evidently did try to foster regional cooperation in Asia, linking Japan to the other non-Communist states, during the 1950s. In 1954 the Eisenhower administration proposed that the Asian

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states participating in the Colombo Plan band together in an organization similar to the OECD in Europe (Grieco 1998: 249). However, the 13 states in question formally rejected the American proposal in 1955, preferring to continue to deal with the US on a bilateral basis (Henderson 1955: 472–473). Their principal motive related to their fear of Japan: With memories of World War II fresh in their minds, the countries of the region were reluctant to establish commercial relations with their former captors [and] feared that their own interests would be dwarfed by an economically resurgent Japan supported by the United States. (Kaufman, as quoted in Grieco 1998: 250) Grieco suggests that Japan’s non-Communist ‘neighbours’ in Asia could not overcome their fear and suspicion of Japan in the way that their counterparts in Europe could overcome theirs in relation to Germany because Germany was ‘not so far ahead of its European partners economically as was true of Japan in comparison with its Asian neighbors’ and that, content to rely on the US alone to defend them, the latter states in any case had little interest in forging security ties with Japan (Grieco 1998: 250–251). The first of the determinants of other non-Communist Asian states’ opposition to integration with Japan that was identified by Grieco – the degree of economic disparity – is in fact tantamount to saying that integration failed because non-Communist East Asia had no ‘France’. That is to say, at least after the Communists came to power at the end of the civil war on the Chinese mainland in 1949, there was no other nonCommunist state in East Asia that could aspire to balance Japanese power and therefore provide smaller states with the reassurance that integration with Japan would not mean increased subordination to Japan – or, moreover, from the moral or diplomatic high ground, could extend an offer of integration to Japan and ease its re-entry into the regional community. This may nonetheless not be the whole story. Neighbouring nonCommunist states’ attitudes to integration with Japan and Germany have also been shaped by the ways in which political elites in the two countries have or have not come to terms with their respective roles in the 1930s and the Second World War. Japan’s post-war situation was comparable to that of Germany in as far as both were defeated and occupied wartime aggressors that could be expected in time to re-develop the capacity to exercise regional hegemony as well as being key states in the American strategy to contain Communist expansionism. In this respect, Germany and Japan occupied similar positions and the points of departure for regional political integration were similar in post-war non-Communist Europe and non-Communist East Asia. But the political elites in the two countries ‘processed’ their respective wartime histories in very different


ways. German political elites assumed Germany’s guilt for the Second World War and the Holocaust. They increasingly developed an arguably ‘post-national’ identity of which a defining component was a more or less reflexive support for regional and international multilateralism.10 Reactions to Japan’s international role in the 1930s and the Second World War, especially among the politically dominant conservatives, have been very different, and denials of any particular Japanese responsibility for wartime aggression and atrocities by prominent conservative Japanese politicians are commonplace. The relative failure of the Japanese political elite to come to terms with Japan’s record of Second World War aggression may be attributable, as American historians argue, to the way in which the American occupation authorities ‘whitewashed’ emperor Hirohito of any responsibility for this record for fear that if the Imperial House should be destabilized or collapse, there would be a ‘revolutionary upheaval’ and the task of administering post-war Japan would become unmanageable (Dower 1999: 287–299; see also Bix 2000: 545, 567–569). Since, however, Hirohito was not tried and held accountable for Japan’s initiation of the war and its wartime conduct: The legitimacy of Japan’s wars of aggression – the belief that it had invaded various Asian and Pacific countries in order to liberate them – could not be fully discredited . . . The nation as a whole came to feel that because the emperor had not been held responsible, neither should they. (Bix 2000: 617–618)11 Almost certainly, the very divergent ways in which post-Second World War (West) German and Japanese political elites have processed their nations’ respective wartime histories made elites in other states in their respective regions more willing to contemplate integration with Germany in the one case and less willing to contemplate it with Japan in the other. Hence, Germany was able to exercise a much stronger and more positive impact on issues of regional integration in cold war Western Europe than Japan was able to in non-Communist East Asia. Like non-Communist Europe, the latter had a recently militarily defeated and occupied, but prospective future hegemonic, power – but not one with which, given the way that its leaders dealt or did not deal with the country’s role as a wartime aggressor, the elites of other non-Communist countries in the region would willingly integrate. Hence, when it came to inter-state cooperation in the East Asian context, Japan could not play any more than half the role played by Germany in Europe.12 Thus, no regional political integration involving Japan developed in non-Communist East Asia during the cold war period. In lieu of such integration, Japan did, of course, develop bilateral political ties of varying degrees of strength with other non-Communist states in the region and,

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by means of overseas development aid, it arguably performed a similar role in the region to that performed by Germany vis-à-vis the poorer EU member states via the EU’s regional and agricultural budgets. But Japan did not become part of any multilateral regional organization until, partly at its instigation, APEC – not an East Asian, but rather Asian-Pacific body – was founded in 1989 and its reticence to participate in the ‘East Asian Economic Group’ proposed by the Malaysian prime minister Mahathir was one reason why, at the time in 1990, this project did not get off the ground (Terada 1999; Krauss 2000; Webber 2001b: 356). Political integration among the non-Communist states of the region was confined to Southeast Asia, where, however, the demographically largest state, Indonesia, was much too poor and the richest state, Singapore, was much too small to be a dynamic regional hegemon.

Conclusion: regional integration in Europe and East Asia after the cold war Since 1990, the end of the cold war has transformed the context of regional political integration in Europe and East Asia. As the ideological and political barriers that divided both regions came down, the issue of the geographic enlargement of existing regional organizations was posed. ASEAN resolved this issue by expanding to include Vietnam, Laos and Cambodia as well as Myanmar during the 1990s (see the chapter by Nesadurai in this volume). Through the ASEAN+3 process, it also began to forge closer ties with China, leading to the adoption of a project to launch an ASEAN-China free trade area by 2010. The participation of Japan and China in the ASEAN+3 process naturally raises the issue of whether a Sino-Japanese ‘tandem’ to promote closer East Asian integration may emerge akin to that formed by France and Germany in Europe. To date, however, there has been no historic Sino-Japanese reconciliation. While the economic ties between the two countries have blossomed, their political relationship has considerably worsened. Tang therefore rates the probability of China and Japan providing joint leadership to East Asian regional integration ‘in the near future’ as ‘low’ (see the chapter by Tang in this volume). The EU, for its part, admitted eight former Communist states among a group of ten new members in 2004 (see Tuschhoff’s chapter in this volume). Both enlargements offer the prospect, but by no means the certainty, of greater regional stability, security and prosperity. At the same time, however, they have increased or will increase greatly the degree of economic and political diversity within the respective regional organizations. In the case of the EU, the fact that almost all the new member states are small as well as poor will destroy the delicate pre-existing balance of power between large and small states in the decision-making organs and has consequently unleashed intense conflicts along the small-large state


dimension in connection with the current treaty reform debate (see the chapter by Laursen in this volume). The management of increased internal diversity may prove all the more difficult, as with the end of the cold war, ASEAN’s and the EU’s most important original raison d’être has vanished.13 Against what should regional integration now be fostered? If there is nothing or no state or group of states against which integration should be developed, can a regional organization develop or sustain a common identity? Without such an identity, will be it possible to develop or sustain a sense of community or solidarity? And without some degree of internal solidarity, will the organizations be able successfully to mediate inevitable distributional conflicts between the socio-economically increasingly diverse member states? There is a heightened danger of policy-making paralysis in regional organizations in both Europe and East Asia at a time when – also a consequence in part of the end of the cold war – burgeoning transnationalization processes of different kinds (economic, financial, demographic, environmental, etc.) are creating political problems that can be effectively managed only by inter-state cooperation. The ‘burden’ of problems facing regional organizations and their capacity to resolve these problems threaten increasingly to diverge. This growing gap or mismatch arguably lies at the heart of the incipient ‘crisis’ of regionalism that I diagnose and referred to in the introduction to this chapter. If regional organizations in Europe and East Asia prove increasingly ‘inefficient’ at solving regional problems or issues, there is a growing risk that they will be increasingly marginalized as national governments look to other forms of inter-state coordination and cooperation (bilateral free trade agreements, ‘coalitions of the willing’, etc.) that promise better and/ or faster results. In Europe, if the EU should be increasingly paralysed and marginalized as a consequence of growing internal conflicts, old – and continuing – debates about the development of a ‘hard core’ Europe, organized on federal or quasi-federal lines, would re-surface. Recent signs of a renaissance of the Franco-German relationship point in this direction (see Guerot’s chapter in this volume). If the ‘enlarged’ EU should fail or effectively grind to a halt, there may be attempts to (re-)create a more tightly integrated ‘mini-Europe’ based on most if not all of the original six EU member states. However, while such ideas are more fashionable in Paris nowadays than they were in the 1990s, they are less so in Berlin, where since 9/11 the Red-Green coalition government has attached increased importance to integrating Turkey into the EU and thus preempting a growing ‘clash of civilizations’ between the Islamic world and the West. Based on historical experience, this somewhat pessimistic prognosis as to the future of regional political integration in Europe and East Asia is most likely to prove misplaced if a common external threat generates or mobilizes a new and growing sense of community or common identity.

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Such a (perceived) threat could come from two directions. The one is militant or violent Islamism. It is, however, doubtful whether in either region this threat will be perceived to be severe enough for long enough to provide a strong ideological basis for much closer political integration. The other conceivable (perceived) threat is from American foreign policy unilateralism. Manning (2000), for example, has argued that international trends towards closer regional integration reflect moves to ‘counter-balance what is perceived as US arrogance, unreliability, and a capricious use of power’ – a perception that was enormously strengthened by the foreign policy of the George W. Bush administration starting in 2001. Some evidence – including the circumstances of the growth of interest in closer regional monetary cooperation in East Asia after the 1997–98 financial crisis and the coincidence of the revival of Franco-German cooperation with the two governments’ break with the US over Iraq – indeed suggests that if European and East Asian regionalism get a new wind, this will be at least partly a – presumably unintended – consequence of perceived American foreign policy unilateralism. However, the different reactions of governments to the US invasion and occupation of Iraq showed that relations with the US could be a profoundly divisive issue in both regions and hence a source of greater regional disunity rather than unity.

Notes 1 For the sake of brevity, the analysis in this section omits any discussion of other theories that may be relevant and useful for explaining regional integration, notably constructivism, historical institutionalism and notions of ‘multi-level governance’. 2 For a ‘liberal intergovernmentalist’ theory of integration, one that stresses preference convergence between France, Germany and the UK as a precondition of closer integration in the EU and sees governments’ motives as being primarily prosperity-related, see Moravcsik (1998). A more classic neo-realist interpretation of integration focusing on inter-state power disparities and (single) hegemonic powers is developed by Joseph M. Grieco (1997). In Charles Kindleberger’s classic exposition of hegemonic stability theory (Kindleberger 1973), hegemony is indivisible. Either one state has it or it does not exist. 3 Obviously, relative wealth is at least as important in this connection as relative economic size. Hence, although the Indonesian economy is still by some distance the largest in ASEAN, the country’s relative poverty has precluded it from playing the same kind of ‘regional paymaster’ role that Germany has performed in the EU. 4 It is Germany that Pedersen has in mind, but the argument may actually be better applied to France, whose drive for European monetary union, for example, was motivated by its concern about Germany’s growing power in Europe, especially in the light of reunification but which has been much more reluctant to accede to closer integration in issue areas such as foreign and security policy, where the bilateral distribution of power is more advantageous to France. It would definitely not apply to that other ‘comparatively weak and declining’ European big power, the UK!


5 Schmidt, German chancellor from 1974 to 1982, adds (also on p. 297) that: ‘France possesses trump cards relating to international law and accords and nuclear weapons that we Germans do not and will not have. Much more important, however, is the fact that in the international community France has enormous prestige as a nation, based on its history and culture, while we Germans will continue to be burdened for generations by the memory of Auschwitz and all the other Nazi crimes’. Similar remarks were made in 2003 by the then German foreign minister, Joschka Fischer. 6 One consequence of the growth in the Communists’ and Gaullists’ parliamentary representation in 1951 was, of course, the defeat in the Parliament of the European Defence Community (EDC) project launched by the French (MRP) prime minister Pleven in 1950. 7 The quote, ‘Algerian problem on its own soil’, is from de Gaulle, as recorded in Peyrefitte 1994: 302. 8 These supranational organs are the ‘commitment institutions’ providing for ‘centralized monitoring and third-party enforcement’ of decisions that Mattli (1999: 13–14) identifies, in addition to strong market pressures for integration and the presence of an ‘undisputed leader’, as a ‘weak’ supply condition for successful integration. 9 The subsequent discussion deals only with non-Communist East Asia, as clearly there was no possibility of political integration occurring between Communist and non-Communist states in the region, just as in the Europe of the cold war period there was no such possibility between non-Communist Western and Communist Eastern Europe. 10 On this issue, see various contributions in Webber 2001a. 11 For further discussion of this issue, see also Dower 1999: 28, 278. 12 There are obviously also other reasons, not discussed here, as to why Japan has not played a more active role in trying to forge closer integration in East Asia, for example, the characteristically ‘reactive’ pattern of Japanese foreign economic policy. For a plausible analysis of some of these factors, see Calder 1988. 13 On the anti-Communist origins of ASEAN, see Webber 2001b: 348.

References ASEAN Secretariat (various years) Annual reports, available at: www.aseansec.org. Bix, Herbert P. (2000) Hirohito and the Making of Modern Japan, New York: HarperCollins. Calder, Kent (1988) ‘Japanese Foreign Economic Policy Formation: Explaining the Reactive State’, World Politics, 60: 4: 517–541. Couve de Murville, Maurice (1971) Une politique étrangère 1958–1969, Paris: Plon. Dedman, Martin J. (1996) The Origins and Development of the European Union 1945–95, London: Routledge. Dower, John W. (1999) Embracing Defeat: Japan in the Wake of World War II, New York: W. W. Norton. European Voice (1998) ‘Bonn Exposed as EU’s Loudest Dissenting Voice’, 15–21 October. Gill, Ranjit (1997) Towards the 21st Century. A Thirty-year Review of the Association of Southeast Asian Nations, London: ASEAN Academic Press. Grieco, Joseph (1997) ‘Systemic Sources of Variation in Regional Institutionalization in Western Europe, East Asia, and the Americas’, in Edward D. Mansfield and Helen V. Milner (eds) The Political Economy of Regionalism, New York: Columbia University Press: 164–187.

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–––– (1998) ‘Political-Military Dynamics and the Nesting of Regimes: An Analysis of APEC, the WTO, and Prospects for Cooperation in the Asia-Pacific’, in Vinod K. Aggarwal and Charles E. Morrison (eds) Asia-Pacific Crossroads: Regime Creation and the Future of APEC., New York: St Martin’s Press: 235–256. Henderson, Jeannie (1999) Reassessing ASEAN, Adelphi Paper 328, Oxford: Oxford University Press for the International Institute for Strategic Studies. Henderson, William (1955) ‘The Development of Regionalism in Southeast Asia’, International Organization, 9: 4 (November): 463–476. Herbst, Ludolf (1989) Option für den Westen: Vom Marshallplan bis zum deutsch-französischen Vertrag, Munich: Deutscher Taschenbuch. Irving, R. E. M. (1979) Christian Democratic Parties of Western Europe, London: Royal Institute of International Affairs/George Allen & Unwin. Katzenstein, Peter (1996) ‘Regionalism in comparative perspective’, Cooperation and Conflict, 31: 2: 123–159. Kindleberger, Charles (1973) The World in Depression 1929–1939, Berkeley CA: University of California Press. Krauss, Ellis S. (2000) ‘Japan, the US, and the Emergence of Multilateralism in Asia’, The Pacific Review, 13: 3: 473–494. Küsters, Hanns-Jürgen (1982) Die Gründung der Europäischen Gemeinschaft, Baden-Baden: Nomos. Loth, Wilfried (1990) Der Weg nach Europa: Geschichte der europäischen Integration, Göttingen: Vandenhoeck & Ruprecht. Lovett, A. W. (1996) ‘The United States and the Schuman Plan. A Study in French Diplomacy 1950–1952’, The Historical Journal, 39: 2 ( June): 425–455. Mahapatra, Chintamani (1990) American Role in the Origin and Growth of ASEAN, New Delhi: ABC Publishing House. Malamud, Andrés (2003) ‘Presidentialism and Mercosur: A Hidden Cause for a Successful Experience’, in Finn Laursen (ed.) Comparative Regional Integration: Theoretical Perspectives, Aldershot: Ashgate: 53–74. Manning, Robert (2000) ‘Heading Towards a World of Regional Fragmentation’, The Straits Times, 11 September. Mattli, Walter (1999) The Logic of Regional Integration: Europe and Beyond, Cambridge: Cambridge University Press. Monnet, Jean (1976) Erinnerungen eines Europäers, Baden-Baden: Nomos. Moravcsik, Andrew (1998) The Choice for Europe: Social Purpose and State Power from Messina to Maastricht, Ithaca NY and New York: Cornell University Press. Oelsner, Andrea (2003) ‘Two Sides of the Same Coin: Mutual Perceptions and Security Community in the Case of Argentina and Brazil’, in Finn Laursen (ed.) Comparative Regional Integration: Theoretical Perspectives, Aldershot: Ashgate: 185–206. Pedersen, Thomas (2002) ‘Cooperative Hegemony – Power, Institutions and Ideas in Regional Integration’, Review of International Studies 28:4 (October): 677–696. Perales, José Raúl (2003) ‘A Supply-Side Theory of International Economic Institutions for the Mercosur’, in Finn Laursen (ed.), Comparative Regional Integration: Theoretical Perspectives, Aldershot: Ashgate: 75–101. Peyrefitte, Alain (1994) C’était de Gaulle, tome 1, Paris: Fayard. Pierson, Paul (1998) ‘The Path to European Integration: A Historical-Institutionalist Analysis’, in Wayne Sandholtz and Alec Stone Sweet (eds) European Integration and Supranational Governance, Oxford: Oxford University Press: 27–58. Schmidt, Helmut (1990) Die Deutschen und ihre Nachbarn, Berlin: Siedler.


Schuman, Robert (1953) ‘France and Europe’, Foreign Affairs, 31: 3 (April): 349–360. Schwarz, Hans-Peter (1992) Erbfreundschaft: Adenauer und Frankreich. Bonn: Bouvier. –––– (1994) Adenauer. Band 1: Der Aufstieg 1876–1952, Munich: Deutscher Taschenbuch. Severino, Rodolfo C. (2002) ‘The Three Ages of ASEAN’, lecture delivered at the ARCO Forum of Public Affairs, Kennedy School of Government, Harvard University, 3 October. –––– (2003) ‘The future of ASEAN Economic Integration’, paper presented at conference, ‘Regional Integration in Europe and Asia: Pasts, Presents and Futures’, organized jointly by INSEAD and the Asia-Europe Foundation (ASEF), Singapore, 7–8 July. Shin Kwanho and Yunjong Wang (2002) ‘Monetary Integration Ahead of Trade Integration in East Asia’, paper prepared for a conference on ‘Linkages in East Asia: Implications for Currency Regimes and Policy Dialogue’, Joint AustraliaJapan Research Project on Future Financial Arrangements in East Asia, Seoul, 23–24 September. Siedentop, Larry (2000) Democracy in Europe, London: Allen Lane/The Penguin Press. Stone Sweet, Alec and Sandholtz, Wayne (1997) ‘European Integration and Supranational Governance’, Journal of European Public Policy, 4: 3 (September): 297–317. –––– and –––– (1998) ‘Integration, supranational governance, and the institutionalization of the European polity’, in Wayne Sandholtz and Alec Stone Sweet (eds) European Integration and Supranational Governance, Oxford: Oxford University Press: 1–26. Terada, Takashi (1999) The Genesis of APEC: Australian-Japan Political Initiatives, Pacific Economic Papers no. 298, Canberra: Australia-Japan Research Centre, Australian National University. Webber, Douglas (ed.) (1999) The Franco-German Relationship in the European Union, London and New York: Routledge. –––– (ed.) (2001a) New Europe, New Germany, Old Foreign Policy? German Foreign Policy Since Unification, London: Frank Cass. –––– (2001b) ‘Two Funerals and a Wedding? The Ups and Downs of Regionalism in East Asia and Asia-Pacific after the Asian Crisis’, The Pacific Review, 14: 3: 339–372. Wessels, Wolfgang (1997) ‘An Ever Closer Fusion? A Dynamic Macropolitical View on Integration Processes’, Journal of Common Market Studies, 35: 2 ( June): 267–299. WTO (World Trade Organization) (2003) World Trade Report 2003, Geneva: WTO.

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16 Europe and Asia Reflections on a tale of two regionalisms1 Amitav Acharya

The main goal of this volume has been to compare and contrast regionalisms in Asia and Europe. Of late, there has been a tendency to draw stark and final contrasts between the two. Several scholars from the West – James Kurth (1989), Aaron Friedberg (1993/94), Barry Buzan and Gerald Segal (1994: 12) being prominent among them – have popularized the notion that Europe and Asia constitute two distinctive paradigms of international relations. In Europe, specifically Western Europe, economic interdependence, multilateral institutions, and liberal democratic domestic political structures sustain deep-rooted and durable peace. In Asia, specifically East Asia, the absence of these conditions foreshadows heightened anarchy and regional disorder. As Buzan writes: ‘Asia and Europe are on fundamentally different trajectories. In some ways, the best comparison for contemporary Asia is nineteenth century Europe, though there are limits to this analogy’ (Buzan 2001: 4–5). If so, is there anything that Asia might learn from the experience of European regionalism? As a concluding note to this book, this chapter, while accepting that there are fundamental differences between the political and security conditions in Europe and Asia, offers two arguments that go against the accepted wisdom in academic and policy circles. First, while European regionalism today is far more advanced than Asia’s fledging experiments in regional cooperation, the optimism about European regionalism and the pessimism about Asian regionalism may both be overblown. The trajectory of European regionalism has not been a linear one, marked by dramatic advancements towards supranationalism. Nor is its ultimate success in overcoming the constraints of state sovereignty guaranteed. The second argument presented is that one should not ignore certain similarities between the two region’s approaches to global peace and security issues, especially when it comes to post-9/11 security challenges. Instead of drawing stark and final contrasts between the two regional orders as a way of implying the innate ‘superiority’ of the European model over the Asian, a more productive approach could be to recognize that building regional cooperation is a difficult and contested process, and that in overcoming these constraints, there need be no single model of

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regionalism, or single yardstick for judging the efficacy or legitimacy of regional institutions. The fact that Asia and Europe are different is not an adequate basis for celebrating European regionalism at the expense of Asia’s, nor does it call for ignoring the transformative potential of the latter.

Coping with turbulence: Europe post-1973 and Asia post-1997 Comparing contemporary Asian security to that of late nineteenth-century Europe can be misleading, because it understates major differences between the two contexts. The structure of economic interdependence in pre-World War Europe was based primarily on trade and exchange, while that in Asia today is rooted heavily in transnational production, linkages that are far more difficult and costly to break. The rise of China displaces the international balance of power in a way similar to the rise of Germany in the late nineteenth century. But this must also take into account the very different environmental conditions (institutional density, overall global interdependence and international norms) within which the two power transitions have taken place. Comparisons should be made not only between Asia and Europe, but also between Asia of the 1950s and 1960s and Asia of the 1990s. Compared to the early post-war period, Asia now has a great number of regional institutions dealing with a wider variety of issue areas. Regional trade interdependence in East Asia declined markedly after the Second World War, but as Peter Petri points out, this trend was reversed after 1985, while other indicators of interdependence, especially cross-border investments, contributed to ‘a new channel of interdependence’ that ‘recalls patterns of integration that have evolved in Europe’ (Petri 1993: 41). While illiberal politics remains a marked feature of Asian political landscape, there has been a number of successful democratic transitions that – with the exception of Indonesia and contrary to the Snyder and Mansfield thesis that democratization creates greater instability – have not created largescale instability and disorder. Asia has a long way to go in developing a shared political milieu marked by shared open and transparent polities of the kind that obtains in Europe, but the trend towards openness is already evident. Another important point of comparison should be between Asia of the post-1997 era with Europe of the 1973 era. This is especially true when the state of regional institutions is concerned. The European Communities (EC) went through a period of ‘turbulence’ during the 1960s and 1970s, prompting one of the leading scholars of regionalism of our era, Ernst Haas, to pronounce the theory and practice of regional integration, EC style, ‘obsolescent’ (Haas 1975).

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The crisis in European regionalism, Haas suggested, had several sources, mostly to do with major changes in the technological and industrial sectors. One was the American ‘technological challenge’, or the vast gap between American and European technological capabilities, especially in advanced technologies (aircraft manufacturing, computers and nuclear reactors). A second source of the crisis was the demand for improved ‘quality of life’ confronting member governments of the EU from their own societies. Economic growth and industrialism alone were no longer acceptable; they needed to be accompanied by environmental protection and redistributive policies. A third source of the European crisis was the oil crisis of 1993, especially the Arab oil embargo (Haas 1976: 181–182). These developments, which had not been anticipated by the European visionaries such as Jean Monnet, Walter Hallstein and Paul-Henri Spaak, put the EC in a period of ‘turbulence’. The crisis in European regionalism led Haas to challenge four core assumptions of European regionalist scholars and practitioners: first, the belief that regionalism will gradually and incrementally lead to a ‘definable institutional pattern’ and that the institutional outcomes of the integration process would be predictable; second, the belief that when faced with trade-offs between their ties with fellow EU partners and ties with non-members, members would decide in favour of the former; third, the assumption that the notion of ‘region’ underlying the EEC could be treated as a ‘self-contained geographical space’; and finally, the expectation that the coordination and centralization of policies and joint tasks could be treated as an ‘autonomous process following its own unique rules’. A turbulent regional order, as Haas described it, is characterized by ‘confused and clashing perceptions of organizational actors in a setting of great social complexity’ (Haas 1976: 179). It is a policy space in which each actor pursues a variety of objectives (nationalist, regionalist, internationalist) that may not be mutually compatible. The trade-offs between these objectives are not clear. But at least some of the objectives cannot be realized without cooperation from other actors because each actor is bound by a network of interdependence with other actors. According to Haas (1976: 179), several consequences followed from this. In a turbulent regional order: 1 2 3

Actors have serious difficulty in developing ‘stable expectations of mutual behavior and performance’. There is an erosion of existing habits of decision-making such as ‘consensus, reciprocity and normative regularity’. Older norms and values of the regional group come under increasing question. New organization structures and institutional practices created to cope with turbulence may change their form and purpose frequently. While old rules are discredited, new rules may lack legitimacy and efficacy and are quickly discarded. ‘Everything is up for grabs’.


In coping with the turbulence, EC members bypassed existing regional collective action plans and decision-making rationality. The choice between national action, community action and joint action with third countries such as the United States was not clear cut. For the more advanced EC members who possessed national capacity for action, such as Germany, France and Britain, community action was not necessarily preferable to national action. As Haas put it: Institutions and fora proliferated and decayed in the search for solutions. Action plans were drafted and ignored. A clear choice between national, European, and global forms of action was never made . . . the closest governments could come to jointly conceptualizing and planning the turbulent field of poorly interrelated activity was the holding of periodic summit conferences of heads of state and government, beginning in 1969. There at least, the issues were articulated in eloquent terms. (Haas 1976: 182) Observers of Asian regionalism post-1997 might be struck by the parallels with the European institutional crisis described above. Asia is going through a period of turbulence. The EC’s brush with technological globalization (led by American multinationals) is akin to what Asia faces today from the forces of globalization in general; like the EC of the 1970s, Asian governments are now being told that they should look beyond economic growth and offer better governance, equity and environmental protection. In 1970s, the EC had its oil crisis; today, Asia is reeling from the impact of the Asian economic crisis that shook the region in 1997. As they struggle to cope with turbulence, Asian regional concepts – like those of the EC in the 1970s – are also facing obsolescence and its institutions are confronting demands for reform. Old rules and institutional practices have been discredited (Acharya 2001). There has been a demand to replace the ‘ASEAN Way’ of informality, organizational minimalism and consensus with more formal and institutionalized decision-making structures. Existing and established norms, such as the doctrine of noninterference, are being questioned. But new proposed rules and frameworks of interaction, such as the notions of ‘flexible engagement’ or ‘enhanced interaction’, are as yet untested for efficacy and lack legitimacy (Acharya 1999). In contemporary Asian regional interactions, while mutual interdependence is recognized, members of Asian regional institutions are trying to respond to new challenges through separate national action and by exploring and forging links with outside actors. Singapore, for example, has opted for bilateral trade deals with countries such as the US and Japan while remaining within the framework of the ASEAN Free Trade Area (AFTA). There have been many regional action plans covering a wide

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range of issue areas – from air pollution to financial transparency, currency swapping and terrorism – but many of these ideas and plans have not been backed up by substantial follow-up action. New institutions are emerging, such as the ASEAN+3 (APT) and the East Asian Community, but the scope and direction of these institutions remain unclear and subject to periodic redefinition. The EC came out of the turbulence of the 1970s reformed and strengthened. Will Asia do likewise? Asian regional institutions have been remarkably path dependent and resistant to reform. We are yet to see the kind of political resolve and leadership that might lift Asian regional institutions out of the current difficulties. But reform and reengagement is necessary and the EC’s experience might offer useful lessons as to how they could cope with and overcome the current turbulence. It is important to bear in mind that Europe’s journey into regional integration has been incremental and evolutionary. As Andrew Moravcsik points out, ‘Europe has always worked best when it “muddles through” – reconciling national interests and building consensus outside the limelight. Over decades, incremental decisions have added up to revolutionary change’ (Moravcsik 2004-05). This has been and remains true of Asia as well, as it struggles to overcome the lingering effects of the economic crisis and to address new dangers, such as transnational terrorism, through greater regional cooperation. In the meantime, too much optimism about the EU’s march towards a federal Europe would seem unwarranted. This is particularly so when the EU is facing new challenges to its unity and purpose as a result of membership expansion, which will magnify its internal diversity. Moreover, despite decades of supranationalist ideas and approaches, there is no conclusive evidence that European commission officials in Brussels have stopped thinking and acting as national representatives. Since the Maastricht Treaty of 1992, the role of the European Commission and its President, once central to the EC’s decision making, has been eroded relative to the role of member states led by France and Germany. Hence, ‘today, effective EU leadership must come not from Brussels but from the national capitals, especially Paris, London and Berlin’ (Moravcsik 2004–05: 30). The EU faces an increasing number of challenges and uncertainties (Acharya 2004b). While the EU’s relative power has grown – it has emerged as an equal of the US in trade, peacekeeping, and foreign aid – it also faces the burdens of membership expansion and intramural discord (such as the British-French/German discord over Iraq). These challenges are not totally different from the challenges ASEAN has faced since it decided to expand its membership from six during the late cold war period (ASEAN’s founding membership was five, Brunei joined in 1984) to include all the ten countries of Southeast Asia (compared to EU expanding from the original six members to 25 now), especially after the 1997 economic crisis followed by serious intramural squabbles between Singapore and Malaysia and Burma and Thailand.2


Asia between European idealism and American power This brings us to a second issue in comparing Asian and European approaches to regionalism. It concerns their respective responses to the post-9/11 global order under American hegemony. A good way to start here may be the much-debated article in Policy Review by Robert Kagan (since published as a book – see Kagan 2003) presenting a powerful contrast between American and European attitudes towards power and international relations. Kagan makes two important points. First, Americans and Europeans (allowing for oversimplification of both categories) live in very different worlds and represent two increasingly divergent worldview and strategic cultures. The Europeans are ‘Kantians’ who have entered ‘a post-historical paradise of peace and relative prosperity’. They favour peaceful solutions to international problems through diplomacy, persuasion and negotiation. The Americans live and believe in a ‘Hobbesian’ world in which international rules are deemed inefficient and unreliable and where security and order is seen to depend on the ‘possession and use of military might’. Kagan (2003) explains this divergence between America and Europe chiefly in terms of a widening gap of physical power. America emerged from the cold war as the world’s sole superpower. Left unchecked by countervailing Soviet power and helped by a booming economy, America could keep and reorient its powerful military to engage in an increasing number of overseas military interventions. Meanwhile, Europe reduced its defence expenditures and moved increasingly on the path of regional accommodation and integration. Its relative power declined steadily, notwithstanding earlier predictions about a united Europe emerging as a superpower in its own right. Where does Asia fit in this growing Euro-American divergence? Although limited to a broad-brush comparison of American and European strategic conditions and predicament, Kagan’s perspective allows us to place Asia in a larger global strategic context. To be sure, categories such as Hobbesian or Kantian do not do an adequate job of explaining Asia’s complex and fluid security predicament. Moreover, the power gap emphasized by Kagan in explaining the EuroAmerican divergence is not the sole or the most important determinant of Asia’s attitude towards international relations. Culture also matters. Despite growing divergence, there is far greater convergence of culture between Europeans and Americans than between Asians on the one hand and the Europeans and the Americans on the other. Moreover, Asia itself is culturally far less homogenous within itself than Europe or America. These intra-Asian differences make it more difficult to speak of a single ‘Asian’ attitude towards international relations. Just as there is no single Asian approach to peace, there can also be no single Asian condition of

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anarchy or disorder. Moments and pockets of stability will co-exist with areas of chaos and disorder. Despite this caveat, it is possible to argue that the world in which Asians live in and the worldview most Asian leaders subscribe to appear to be more Hobbesian than Kantian. Unlike Europe, Asia remains rife with conflicts. It lags far behind Europe’s level of regional integration and its commitment to liberal democracy. Moreover, while relative lack of power vis-à-vis the US is common to both Europe and Asia, this has produced dissimilar responses. Kagan holds that Europe’s lack of power has led it increasingly on the path of multilateralism. In the case of Asia, it has led to strategic dependence on larger players, particularly the United States. Military alliances are in decline in Europe; they remain robust in Asia. While Europe’s commitment to multilateralism and rule of law in international affairs is born out of a determination to transcend the sovereigntybound nation-state system, Asia’s interest in multilateralism is born primarily out of a desire to preserve the existing rules of international relations, especially those related to sovereignty. Europeans increasingly live in a post-sovereign world, believing it to be more efficient and morally desirable; Asia remains firmly beholden to sovereignty, taking it as the fundamental basis of their stability and identity. Asians, like Europeans, oppose American unilateralism, as is evident in recent debates about Iraq. Asians have done so less out of moral compulsions than a fear of legitimizing great power intervention in their internal affairs. Thus, while Europe pursues a principled multilateralism and America an instrumental one (selective and serving American national interests and need), Asian multilateralism is conditioned by essentially pragmatic concerns geared towards state and regime security. Yet, Asia is not, and cannot be, Hobbesian in the sense that America is. Unlike the US, Asian states lack the means to pursue national objectives unilaterally through force. Asia is too conscious of its vulnerabilities and weaknesses to share America’s ‘culture of death’, i.e. its tendency to view the world in ‘good versus evil’ terms, its ‘warlike temperament’, and its penchant for ‘coercion’ and ‘unilateralism’ over diplomacy and cooperation to attain national objectives. Indeed, both Europeans and Asians share a common fear of these aspects of US hegemony. Kagan asserts that compared to Americans, Europeans are ‘more tolerant of failure, more patient when solutions don’t come quickly’. They eschew ‘finality’ in international affairs, prefer ‘negotiation, diplomacy, and persuasion’, and emphasize ‘process over result’. These observations have resonance for Asian regional institutions, including ASEAN and the ASEAN Regional Forum (ARF) as well. Moreover, there is a remarkable similarity between two of the leading states in Europe and Asia respectively, namely France and China, which both prefer a multipolar as opposed to a unipolar world order. Both China


and France view America’s extreme hegemony and its attendant tendency towards unilateralism as a challenge to world order, undermining the possibility of both peace and justice. Asia may never become, or aspire to become, a Kantian paradise. But some of the conditions that fostered order in Europe are not entirely lacking in Asia. In the early cold war period, Asia’s regional order rested on three pillars: (1) inward-looking, nationalist and state-led economic development strategies; (2) authoritarian rule; and (3) bilateral alliances with major powers, especially the US. Today, these have given way to shared economic liberalism (export-led growth, free trade and growing regional economic interdependence), democratic transitions in many countries, and the emergence of regional institutions. The fact remains that Asia (especially East Asia) today is much more interdependent, democratic and institutionalized as a region than at the beginning of the post-Second World War period. If Kagan’s (2003) arguments about the differences between Americans and Europeans are pushed to their logical conclusion, and we add Asians to this analytical approach, then we reach an ironic conclusion that Asians today in terms of their attitude towards conflict and conflict management would seem to be much closer to Europeans than to Americans. But this does not mean that Asians are merely learning from the Europeans. Asia has developed its own approach, independent of European influence. Instead of mimicking Europe’s overarching multilateralism, Asia is developing ad hoc and problem-specific cooperation, combining bilateral, concerted unilateral, and sub-regional approaches. State-centric cooperation is targeted at specific issue areas: terrorism, North Korea, South China Sea, etc. Ultimately, Asia’s ability to develop a balance between different types of interactions may prove a more practical and productive approach to regional order than Europe’s single-minded pursuit of supranationalism. In the economic as well as security field, Asia is developing a better synergy between bilateralism and multilateralism. The nexus between bilateral and multilateral security frameworks has proven more adaptable and flexible than Europe’s purely multilateral collective defence arrangements, whether it is centred on NATO or a future EU with a unified defence and foreign policy approach. And Asia’s ability to preserve national identities and intraregional diversity while pursuing multilateral cooperation could offer a more normatively appealing and practical model of community building than Europe’s integrative approaches (The Economist 2004: 6–9).

Notes 1

This paper was not originally commissioned for, or circulated at, the conference that gave rise to this volume, but is based on concluding remarks that the author was invited to give at the conference. It should be seen more as a set of reflections rather than as a fully fledged research paper. Portions of the second part of this paper are drawn from the author’s previously published work (2004a).

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2

This is not to suggest that the EU and ASEAN have taken identical approaches to membership expansion. Compared to ASEAN, the EU of course has much larger resources with which to ease the incorporation of new members through aid, and it has take a more incremental approach to membership expansion, imposing stringent economic and political conditions, including levels of budget deficit and democratic political systems. ASEAN’s membership expansion occurred more quickly; between 1995 and 1999, it had acquired all its four new members. While it worked out differential treatments for the new members joining the AFTA, ASEAN has not had the interest and ability to offer financial aid to the new members. The 1997 economic crisis made it even more difficult for the original ASEAN members, themselves pushed to the economic and in the case of Indonesia, political brink, to offer assistance to the new members – Vietnam, Laos, Burma and Cambodia. While the new members had joined ASEAN to increase their attractiveness as a destination for foreign direct investment (FDI), this was dashed by the economic crisis, thereby undermining the importance of ASEAN to them. Finally, the granting of membership to Myanmar without any demand for political reform has come to haunt ASEAN, as the military junta in Myanmar consolidates its hold on power and becomes a serious embarrassment for ASEAN. Nonetheless, competition and squabbling over budget issues and aid among the EU members that joined in the 1970s and 1980s and the ten that joined most recently are likely to intensify.

References Acharya, Amitav (1999) ‘Realism, Institutionalism and the Asian Economic Crisis’, Contemporary Southeast Asia, 21: 1 (April): 1–29. –––– (2001) Constructing a Security Community in Southeast Asia: ASEAN and the Problem of Regional Order, London: Routledge. –––– (2004a) The Age of Fear: Power versus Principle in the War on Terror, Singapore: Marshall Cavendish Academic and New Delhi: Rupa & Co. –––– (2004b) ‘Regional Security Arrangements in a Multipolar World: The EU’s Contribution’, in Martin Ortega (ed.) Global Views on the European Union, Chaillot Paper No. 72 (November), Paris: European Union Institute of Strategic Studies. Buzan, Barry (2001) ‘Contrasting Trends in the Development of the Security Environment in Asia and Europe’, paper presented at the conference on ‘The New Global Security Agenda in Asia and Europe and Prospects for Cooperation’, Institute of International Relations, Hanoi (10–11 December). –––– and Segal, Gerald (1994) ‘Rethinking East Asian Security’, Survival, 36: 2: 3–21. The Economist (2004) ‘Outgrowing the Union: A Survey of the European Union’, supplement, 25 September. Friedberg, Aaron (1993/94) ‘Ripe for Rivalry: Prospects for Peace in Multipolar Asia’, International Security, 18: 3 (Winter): 5–33. Haas, Ernst (1975) The Obsolescence of Regional Integration Theory, Berkeley CA: Institute of International Relations, University of California. –––– (1976) ‘Turbulent Fields and the Theory of Regional Integration’, International Organization 30: 2 (Spring): 173–212. Kagan, Robert (2003) Of Paradise and Power – America and Europe in the New World Order, New York: Random House.


Kurth, James (1989) ‘The Pacific Basin Versus the Atlantic Alliance: Two Paradigms of International Relations’, Annals of the American Academy of Political and Social Science, 505 (September): 34–45. Moravcsik, Andrew (2004–05) ‘It’s the Job, Stupid’, Newsweek (Special Issues 2005 Edition) (December–January): 30. Petri, Peter A. (1993) ‘The East Asian Trading Bloc: An Analytic History’, in Jeffrey Frankel and Miles Kahler (eds) Regionalism and Rivalry: Japan and the United States in Pacific Asia, Chicago IL: University of Chicago Press: 21–52.

1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Index

Please note that page references to non-textual material such as tables are in italic print A400M military aircraft 250, 251, 259 ABF (Asian Bond Fund) 32, 115 Acharya, Amitav 12–13, 312–321 acquis communautaire/acquis politique 187 Action Directe 252 Action Programme for Employment and Growth (UK) 94 activism: European Security and Defence Policy (ESDP) 257–260; supranational 19 ADB (Asian Development Bank) 20, 113, 116, 210, 271; social protection programme, developing 213 Adenauer, Konrad 43, 299, 301 AEC (ASEAN Economic Community) 30, 67, 278; EU enlargement 200, 206, 209, 212 AFAS (ASEAN Framework Agreement on Services) 31 Afghanistan, Soviet invasion (1979) 97 African Union (AU) see AU (African Union) AFSJ (Area of Freedom, Security and Justice) 134 AFSOUTH (Allied Forces South Europe) 246 AFTA (ASEAN Free Trade Area) 27, 30, 31, 200, 202, 270, 278, 315; Chiang Mai Initiative 118, 121; enlargement, and ASEAN economic integration 203, 204; regional theory and practice 27, 30, 31 Agency for European Capabilities and Armaments 239, 261 Agenda 2000 47 Agreement on Information Exchange and Establishment of Communication Procedures 272 agriculture, enlargement negotiations 188–191 AISP (ASEAN Integrated System of Preferences) 204 Alatas, Ali 154 Albania, Multinational Protection Force (MPF) 249

Allied Forces South Europe (AFSOUTH) 246 see AFSOUTH (Allied Forces South Europe) Al Qaeda 252, 255, 272 AMF (Asian Monetary Fund) 80, 225; Chiang Mai Initiative and 78; financial crisis and 20, 110; monetary regionalism 31 AMMs (ASEAN Ministerial Meetings) 155, 222, 223, 266, 276 Amsterdam Treaty (1997) 7, 45, 48, 131, 133–137; AFSJ, creation 134; CFSP 135, 136; co-decision procedure 133; constructive abstention 135; ‘leftovers’ 137; QMV 132, 134; Schengen agreement on border controls 134–135; Section 1: ‘Freedom, Security and Justice’ 134–135; Section 2: ‘The Union and the Citizen’ 135; Section 3: ‘An Effective and Coherent External Policy’ 135 Anwar, Dewi Fortuna 4–5, 59–68 APEC (Asia Pacific Economic Cooperation) 3, 66, 227, 228, 293; Asia Pacific concept 218, 219; financial crises and 110; identity crisis 31; Japan, and ASEAN+3 229; ‘open regionalism’ agenda 27; regional theory and practice 17, 19, 20, 22, 25; trade agenda 118 APT (ASEAN+3) see ASEAN+3 (ASEAN Plus Three) Aquino, Cory 66 Area of Freedom, Security and Justice (AFSJ) see AFSJ (Area of Freedom, Security and Justice) ARF (ASEAN Regional Forum) 10, 73, 76, 161, 275–276; 10th Meeting 266; conflict management 268; creation 268 ASA (ASEAN Swap Arrangement) 110, 111 ASA (Association of Southeast Asia) 62

Index 323 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

ASC (ASEAN Security Community) 7, 67, 278; concept 266; diplomatic and security culture 152, 157–160; management of regional order 159–160; Plan of Action 160; proposal, reasons for rejecting 163–166 ASEAN+3 (ASEAN Plus Three) 3, 5, 6, 9, 306; Asian financial crisis and 110–111, 225–229; bilateralism 30; birth and growth 218–236; centripetal forces and 220, 225–229; Chiang Mai Initiative 113; ‘common others’ and 220; EAEC, failure 221–222; East Asia, concept see East Asia, concept; institution building see institution building, leadership in; leadership, searching for 72–74; monetary regionalism 31, 32, 35; regional concept 219–220; regionalism of East Asia 229–233 ASEAN-6 (original) 202, 208 ASEAN (Association of Southeast Asian Nations) 3; Bangkok Declaration (1967) 61, 63; consolidation 63–66; diplomatic and security culture see diplomatic and security culture (ASEAN); economic integration, and enlargement 203–206; formation, Indonesia’s role in 60–63; High Council 151, 160, 165; Indo-Chinese enlargement see Indo-Chinese enlargement; Indonesia, role in see Indonesia, role in ASEAN; Investment Agreement 31; leadership in 60, 64; non-interference principle see noninterference principle; north–south divide within 208; Post-Ministerial Conference (PMC) 223, 224, 229; South Korea and see South Korea; Standing Committee 280; TAC (1976 Treaty of Amity and Cooperation) 158 ASEAN Centre for Combating Terrorism 266 ASEAN Centre for Disease Control 274 ASEAN Declaration on Joint Action to Counter Terrorism 272 ASEAN Economic Community (AEC) see AEC (ASEAN Economic Community) ASEAN Framework Agreement on Services see AFAS (ASEAN Framework Agreement on Services) ASEAN Free Trade Area (AFTA) see AFTA (ASEAN Free Trade Area) ASEAN Integrated System of Preferences (AISP) see AISP (ASEAN Integrated System of Preferences) ASEAN-Japan Comprehensive Economic Partnership 119 ASEAN Maritime Surveillance Centre 266 ASEAN Ministerial Meetings (AMMs) see AMMs (ASEAN Ministerial Meetings) ASEAN Peace Keeping Training Centre 266

ASEAN Regional Forum (ARF) see ARF (ASEAN Regional Forum) ASEAN Security Community (ASC) see ASC (ASEAN Security Community) ASEAN Socio-Cultural Community 278 ASEAN surveillance process (ASP) see ASP (ASEAN surveillance process) ASEAN Swap Arrangement (ASA) see ASA (ASEAN Swap Arrangement) ASEAN-UNDP Partnership Facility 213 ’ASEAN Way’ 10, 20, 162, 278, 279, 282; replacement by formal structures 315 ASEM (Asia Europe Meeting) 115, 223 Asia: post-1997 313–316; regionalism following financial crisis 20–24 Asia Cooperation Dialogue group 115 Asia Europe Meeting (ASEM) see ASEM (Asia Europe Meeting) Asia Pacific Economic Cooperation (APEC) see APEC (Asia Pacific Economic Cooperation) Asian Bond Fund (ABF) see ABF (Asian Bond Fund) Asian Development Bank (ADB) see ADB (Asian Development Bank) Asian Monetary Fund (AMF) see AMF (Asian Monetary Fund) ASP (ASEAN surveillance process) 35 ASSK (Aung San Suu Kyi), Myanmar 153, 154, 155, 276; under ‘protective custody’ 161, 162, 163 Association of Southeast Asia (ASA) see ASA (Association of Southeast Asia) Association of Southeast Asian Nations see ASEAN (Association of Southeast Asian Nations) Atlantic Alliance 242, 246, 260 AU (African Union) 69 Aung San Suu Kyi (ASSK), Myanmar see ASSK (Aung San Suu Kyi), Myanmar Aznar, Jose Maria 51 Badawi, Abdullah Ahmad 224 Balassa, Bela 24, 33, 34 Bali, ASEM Foreign Ministers’ Meeting (2003) 153, 231 Bali Concord (Declaration of ASEAN Concord) (1976) 158 Bali Concord II (Declaration of ASEAN Concord II) (2003) 152, 157, 166, 278, 279, 282 Bangkok Declaration, formation of ASEAN (1967) 61, 63 Bank for International Settlements (BIS) bargaining, institution building and 72 Basel-Nyborg Agreements (1987) 99 Bashir, Abu Bakar 273

324 Index 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Battle of Verdun, French commemoration of 45 BBC (British Broadcasting Corporation) 161 Berlin Plus Agreement, NATO (2002) 239, 251, 253 Berlin Wall, fall (1989) 54, 240 bilateral swap arrangements (BSAs) 6, 111–112 bilateral trade, and regional theory 3, 28–30 Bird Flu disease 265 Blaesheim agreement (2001): Franco-German relations 49 Blair, Tony 45, 51, 246–247 Bosnia: European Security and Defence Policy (ESDP) 10, 242–245, 251, 261; Srebrenica, massacre at 243 Bretton Woods exchange rate system 88, 92 British Broadcasting Corporation (BBC) see BBC (British Broadcasting Corporation) BSAs (bilateral swap arrangements) 6, 111–112 Bundesbank 44, 45, 91, 92, 96, 99, 101; on EMU 100; as Europe’s de facto central bank 93, 98; on monetary targeting 102 Bunia, Interim Emergency Multinational Force in 254 Burmese Freedom and Democracy Act (2003) 161 Burns, James 70 Bush, President George W. 53, 252 Buzan, Barry 312 C3I (Communications, Command, Control and Intelligence) (US) 249 Caballero-Anthony, Mely 10, 11, 265–285 Cairns Group (1986) 73, 76 Cambodia, conflict in 65, 269–270 CAP (Common Agricultural Policy): Amsterdam Treaty 134; EU accession negotiations, conflicts during 188–189, 191; Franco-German relations and 46–47, 50; treaty reforms 145 capacities, regional: assessing 274–277; domestic capacity for change 280–281; enhancement 277–281; expansion, perils of 279–280; non-interference principle, impact on regional responses 276–277 capital movements, liberalization 90–91, 95–97; June 1988 directive 96 CBMS (confidence building measures) 279 CDU (Christlich-Demokratische Union) (Christian Democratic Union, Germany) 301; Franco-German relations 48, 50 CEEC (Central and East European countries) 175; accession countries’ interest in EU membership 177, 178, 179; current member states, economic costs and benefits 180, 181, 182, 183, 184, 185; EU-15 and

184, 186, 190; old member states’ interest in enlargement 180–191 Centre for Strategic and International Studies (CSIS) (Indonesia) see CSIS (Centre for Strategic and International Studies) centripetal forces, and region 220, 225–229 CFSP (Common Foreign and Security Policy) 46, 48, 131, 132; Amsterdam Treaty (1997) 135, 136; draft constitutional treaty and 141; IGC 143; Saint Malo process 248 Charter of Fundamental Rights 139, 140, 145 Chiang Mai, Finance Ministers’ Meeting (2000) 218 Chiang Mai Initiative (CMI) 6, 31, 33, 109–127, 270; background 109–111; bond markets, development 115; BSAs 6, 111–112; costs and benefits 114–115; currency-swap arrangements 78; financial cooperation, related 111–113; IMF, link to 112, 113; monetary integration, closer 115–117; politics, and regional monetary cooperation 123; significance 114–115; trade integration initiatives 117–123 China: ASEAN-China FTAs 29, 120–121; Japan and 5, 9, 72–74, 78, 79–80, 81, 231; rise of 313; US and 73 Chirac, Jacques 4, 47, 50, 51, 55, 246; on nuclear weapons 98 ‘Chocolate summit’ (2003) 52 Choice for Europe (A. Moravcsik) 131 Chongkittavorn, Kavi 166 Christian Democratic Union (Germany) 48, 50 CIG (Conference of the Representatives of the Governments of the Member states) 142 Clinton, Bill 245 CLMV countries (Cambodia, Laos, Myanmar and Vietnam) 279, 281 CLV states (Cambodia, Laos and Vietnam) 189, 201, 212, 213; enlargement and ASEAN economic integration 203, 204, 205, 206 CMI see Chiang Mai Initiative (CMI) co-decision procedure 133, 144 Cologne, European Council (1999) 247, 248 Colombo Plan 304 COMECON (Council for Mutual Economic Assistance) 178 Commission see European Commission Common Agricultural Policy (CAP) see CAP (Common Agricultural Policy) Common Foreign and Security Policy (CFSP) see CFSP (Common Foreign and Security Policy) Communications, Command, Control and Intelligence (C3I) see C3I (Communications, Command, Control and Intelligence)

Index 325 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Communist Party of Soviet Union (CPSU) see CPSU (Communist Party of Soviet Union) Completing the Internal Market (Commission White Paper) 89, 95 CONF (Conference of the Representatives of Governments of Member states) 133 Conference for Security and Cooperation in Europe see CSCE (Conference for Security and Cooperation in Europe) conferral principle, and Union competences 140 confidence building measures (CBMS) see CBMS (confidence building measures) conflict/crisis management 267–269 Constitutional Convention, France and Germany in 50–51 Constitutional Treaty (2004) 7; draft 131, 132, 140–142; implications and consequences 143–144; QMV 141, 143; ratification 1, 131, 133 constructivism 3, 21 Convention on the Future of Europe (2002–03) 131 cooperation: bargaining process 78; economic and monetary 5; financial (Chiang Mai Initiative) 111–113; Franco-German 41; see also Franco-German relations; international, theory of 73; learning 81–82; regional monetary, and politics 123; SinoJapanese 72–74, 73, 78, 79–80, 81; theory 78 Copenhagen summit (1993) 187 Corregidor Affair (1968) 66 Council of Ministers: voting patterns 94, 297 Council for Mutual Economic Assistance (COMECON) see COMECON (Council for Mutual Economic Assistance) CPSU (Communist Party of the Soviet Union) 98 crises in Asia: ASEAN’s response 6; conflict management 267–269; financial see financial crises (Asia); inclusive regionalism 268; non-interference principle, impact on regional responses 276–277; post-9/11 and regional security 3, 33, 34, 272–273; regional capacities 274–277, 277–281; regional reconciliation process 268; SARS, and health crisis 234, 265, 273–274; security and regional crisis management 9–10 Croatia, EU accession 55 CSIS (Centre for Strategic and International Studies) (Indonesia) 158 Dae Jung, Kim 76, 227 Dayton peace accord 245 Declaration of ASEAN Concord (Bali Concord) (1976) 158

Declaration of ASEAN Concord II (Bali Concord II) (2003) 152, 157, 166, 278, 279, 282 Defence and Security Council 99 de Gaulle, General Charles 19, 43, 298, 301, 302; ‘empty seat’ policy (1966) 42 Delores, Jacques 19, 44, 94, 95 de Michelis, Gianni 243 Democratic Republic of Congo (DRC) see DRC (Democratic Republic of Congo) Depayin (Myanmar), violence at (2003) 153, 154, 155, 161; ASEAN’s stance following 152, 157; external pressure and 161–163 Derrida, Jacques 53 Deutsche Mark (DM) 44, 87, 88, 91, 92, 99 Deutsche Telekom 106 de Villepin, Dominique 50 diplomatic and security culture (ASEAN) 150–171; ASEAN Security Community (ASC) 157–160, 163–166; assessment and outlook 166–167; ‘enhanced interaction’ 151, 315; ‘flexible engagement’ concept see ‘flexible engagement’ concept; limited development 160–166; Myanmar and 153–157, 160, 161–162; non-interference principle, breach 155–157 DM (Deutsche Mark) 44, 87, 88, 91, 92, 99 Doha Round, bilateral trade policy and 28 dollar (US), exchange rate regimes 116, 123 DRC (Democratic Republic of Congo) 254 Dublin, EU summit (1996) 45 Duisenberg, Wim 102 EAEC (East Asian Economic Caucus) 80, 218, 219; Chinese support 33; failure 221–222, 233; no shared interests in 221–222 East African Common Market 18 East Asia: concept 221, 222–225, 228–229, 233; crisis, and conflict management 267–269; on euro, rise of 75; Goh Chok Tong’s proposal 223–225; Northeast Asia’s growing interest in concept 228–229; political integration, lack of 2, 303–306; post-cold war 306–308; regionalism 229–233; as valid economic space 20 East Asia Economic Community, and monetary regionalism 30–33 East Asian Economic Caucus (EAEC) see EAEC (East Asian Economic Caucus) East Asian Free Trade Area (EAFTA) see EAFTA (East Asian Free Trade Area) East Asian Study Group 231 East Asian summit: annual meetings transformed into 1; Kuala Lumpur (1997) 31, 224, 229–230 East Asian Vision Group 230

326 Index 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

East Timor: INTERFET (International Force) 271; violence in 9, 10, 271–272, 275 EBO (Effects Based Operations) 250 EC (European Communities) 96, 131 ECAP (European Capability Action Plan) 250 ECB (European Central Bank) 93, 99; European Council, accountability to 101; Franco-German relations 44, 45; location 101; role 102–103 ECJ (European Court of Justice): ‘Cassis de Dijon’ case 89–90; Internal Market Programme and 5; ‘supranational’ powers given to 131 Economic and Financial Council, FrancoGerman 99 economic and monetary integration: Balassa, model of 24, 33, 34; capital movements, liberalization 90–91, 95–97; Chiang Mai Initiative 115–117; German unity, and monetary union 97–101; history 87–89; intra-European exchange rates 91–93; markets, development of, and EC law 89–91; monetary union, transition to 93–101; political sustainability 206–210; regional, prospect for 201–206; socioeconomic divide and 208–210; Werner Plan 88, see also EMU (European and Monetary Union) ECSC (European Coal and Steel Community) 18, 132, 146, 175, 293; agreement to create 298; Rome treaty and 302 ECU (European Currency Unit) 92, 96 EDC (European Defence Community) 18, 43, 241, 260, 301 EEC (European Economic Community) 18, 87; Treaty establishing see Rome, Treaty of (1957) Effects Based Operations (EBO) see EBO (Effects Based Operations) EAFTA (East Asian Free Trade Area) 218, 230, 232 EFTA (European Free Trade Association) 133 Eisenhower, Dwight D. 303–304 Elysée Treaty (1963) 43, 50, 51, 53 EMEAP (Executives’ Meeting of East Asia Pacific central banks) 110, 115 EMI (European Monetary Institute) 101 EMS (European Monetary System) 44, 92, 93, 116 EMU (Economic and Monetary Union) 107; creation, programme for 100; FrancoGerman relations 43, 44–45, 46; IGC 143; see also economic and monetary integration ‘enhanced interaction’ concept 151, 315 enlargement 175–198; accession countries’ interest in EU membership 177–180, 181; agriculture 188–191; ASEAN economic integration and 203–206; asymmetry,

implications 193–195; conflicts during negotiations 188–193; current member states, economic costs and benefits 180, 181, 182, 184, 185, 186; eastern 46–48, 145; European Union 175–198; ideas, power of 186–187; Indo-Chinese 199–217; ‘multidimensional asymmetry’, process characterized by 8; old member states’ interest in 180–187; origins 177–187; postcold war 8–9; regional policy and structural funds 191–193; ‘rhetorical action’ 186 EP (European Parliament) 51, 133, 136, 140; Nice Treaty 137 EPZ (Export Processing Zones), Malaysia 25 Erdogan, Tayyip 253 ERM (Exchange Rate Mechanism) 99 ERM-2 101 ESCB (European System of Central Banks) 103 ESDP (European Security and Defence Policy) 239–264; activism, new 257–260; Bosnia 10, 242–245, 251, 261; credibility, search for 251–260; ‘effective multilateralism’ 256, 257; Franco-German relations 46, 48, 52; international context 252–255; Kosovo see Kosovo conflict; nonproliferation policy 254; pre-emption concept 258; ‘preventive engagement’ 256, 257; responsibility, quest for 241–251; Saint-Malo see Saint-Malo process; Sarajevo see Sarajevo ; soft power see soft power ESDU (European Security and Defence Union) 52 Estrada, Joseph (Philippines President) 228, 277 ETA (Euskadi Te Askatusuna) (Basque separatist organization) 252 EU (European Union) 3; accession countries’ interest in membership 177–180; Amsterdam Treaty see Amsterdam Treaty (1997); Cohesion Fund 193; competences 140–141; Conference of the Representatives of the Governments of the Member states (CIG) 142; Constitutional Treaty see Constitutional Treaty; crises in 10; economic and social cohesion goal 191; enlargement 46–48, 175–198; EU-15, and CEEC 184, 186, 190; European Convention, and draft constitutional treaty 140–142; as hybrid entity 7; Intergovernmental Conference (IGC) (2004) see IGC (Intergovernmental Conference) (EU) (2003–2004); Maastricht Treaty (1992) 131; membership criteria 22; Nice Treaty see Nice Treaty (2001); as political system 23; single market programme 17, 18; social policy, and UK

Index 327 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

101; as supranational polity 132, 146–147, 302; Treaty on see TEU (Treaty on European Union); treaty reforms 131, 144–146; UK membership, French objection to 42; see also Europe euro: East Asia on 75; launch of 5, 45, 101, 102; monetary union, benefits 103, 104 Euro-centrism 293, 296 Eurocorps 46, 242 Europe: ‘core’ 4, 48, 53–54; idealism and American power 317–319; integration, monetary see economic and monetary integration; post-1973 era 313–314; United States, relations with 52–53; see also EU (European Union); Western Europe European Capabilities Action Plan (2001) 259 European Capability Action Plan (ECAP) see ECAP (European Capability Action Plan) European Central Bank (ECB) see ECB (European Central Bank) European Coal and Steel Community (ECSC) see ECSC (European Coal and Steel Community) European Commission: Council, relationship with 259; erosion of role 316; mutual recognition principle 89–90; size and composition 137, 139; ‘supranational’ powers given to 131 European Communities (EC) see EC (European Communities) European Confederation, Mitterand’s proposal for (1990) 43 European Convention, constitutional treaty 140–142 European Council, Joint Action (2003) 254 European Court of Justice (ECJ) see ECJ (European Court of Justice) European Currency Unit (ECU) see ECU (European Currency Unit) European Defence Community (EDC) see EDC (European Defence Community) European Economic Community (EEC) see EEC (European Economic Community) European Free Trade Association (EFTA) see EFTA (European Free Trade Association) European Military Police Force 249 European Monetary Cooperation Fund (FECOM) see FECOM (European Monetary Cooperation Fund ) European Monetary Institute (EMI) see EMI (European Monetary Institute) European Monetary System (EMS) see EMS (European Monetary System) European Parliament (EP) see EP (European Parliament) European Security and Defence Identity (1994) 246

European Security and Defence Policy see ESDP (European Security and Defence Policy) European Security and Defence Union (ESDU) see ESDU (European Security and Defence Union) European System of Central Banks (ESCB) see ESCB (European System of Central Banks) European Union see EU (European Union) Exchange Rate Mechanism (ERM) see ERM (Exchange Rate Mechanism) exchange rates: basket peg option 116; ECB on 102; fixed arrangements 88, 92; floating regimes 88, 116; ‘hard corner’ regimes 116; intra-European 91–93, 98; US dollar and 123 expansion, perils of 279–280 Export Processing Zones (EPZ), Malaysia see EPZ (Export Processing Zones), Malaysia FDI (foreign direct investment) 178–179; Indo-Chinese enlargement of ASEAN 202, 204, 205, 207 FDP (Freie Demokratische Partei) (Free Democratic Party, Germany) 301 FECOM (European Monetary Cooperation Fund) 92 Feira European Council (2000) 249 financial crises (Asia): in 1997–98 2, 9, 28, 109, 269–272, 308; Chiang Mai Initiative and 109; monetary and trade cooperation following 6; regionalism following 2, 3, 20–24, 225–229 first wave theorizing 17, 20–21, 26 Fischer, Joschka (German foreign minister) 48, 50, 54, 102; Humboldt speech (2000) 49 ‘flexible engagement’ concept 7, 150, 151, 157, 160, 315; ASC and 159; Bali Concord and 163; Myanmar crisis (2003) 166 Ford, Henry 102 foreign direct investment (FDI) see FDI (foreign direct investment) Fort, Bertrand 1–13 ‘Fouchet Plan’ (1960–62), France 43 France: démorcellement policy 42; ‘Fouchet Plan’ (1960–62) 43; Fourth Republic 300; as hegemonic power 297–298; Rassemblement Pour la République Française (RPR) 48–49; strong franc (franc fort) policy 44; Union pour la Démocratie Française (UDF) 48, see also FrancoGerman relations franc, French: devaluations 92–93; stabilization within EMS 93; strong franc (franc fort) policy 44 Franco-German relations 41–58; Blaesheim agreement (2001) 49; Constitutional Convention 50–51; core Europe, and

328 Index 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Franco-German federation 53–54; dichotomies 41; eastern enlargement of EU, financing 46–48; Economic and Financial Council 99; Economic and Monetary Union 43, 44–45; Elysée Treaty (1963) 43, 50, 51, 53; erosion (1990s) 44–49; exchange rates 92; foreign, security and defence policy difficulties 46; future prospects 49–54; parameters 42–43; political union 48–49; rapprochement 4; Treaty (1963) 98, 99 Free Democratic Party (Germany) 301 Free Trade Area of the Americas (FTAA) see FTAA (Free Trade Area of the Americas) free trade areas see FTAs (free trade areas) Friedberg, Aaron 312 Friedrich, Carl 147 FTAA (Free Trade Area of the Americas) 9, 219, 220 FTAs (free trade areas): ASEAN-China 29, 120–121, 206; ASEAN’s intramural 118; bilateral 28; East Asian 218, 230, 232; Japan 118–119, 231, 232; liberalization agenda 121; Singapore 29, 119, 122; trade integration initiatives 118–123 G5 finance ministers, New York meeting (1985) 98–99 GATT (General Agreement on Tariffs and Trade) 94, 118; bilateral agreements and 29; Uruguay Round trade negotiations 73, 76, 222; see also WTO (World Treaty Organization) GDP (gross domestic product): ASEAN 209; Central and Eastern Europe 176, 179; defence budgets 250; deficit criteria 45; monetary union and 105; trade integration initiatives and 120 GDR (German Democratic Republic) 92 General Agreement on Tariffs and Trade see GATT (General Agreement on Tariffs and Trade) German Democratic Republic (GDR) see GDR (German Democratic Republic) Germany: Berlin Wall, fall (1989) 54, 240; Bundesbank see Bundesbank; Christian Democratic Union see CDU (ChristlichDemokratische Union) (Christian Democratic Union, Germany); Deutsche Mark see DM (Deutsche Mark); Free Democratic Party 301; GDR (German Democratic Republic) 92; ‘German problem’ (1950) 132; as hegemonic power 297; Institute for Economic Research see DIW (Deutsches Institut für Wirtschaftsforschung) (German Institute for Economic Research); reunification (1989–90) and consequences 43–44, 295;

Social Democratic Party (SPD) 50, 97; unity of, and monetary union 97–101; see also Franco-German relations Giscard d’Estaing, Valéry 92, 103, 140 globalization 22, 24, 34; regionalism and 35 Global Outbreak Alert and Response Network 274 GNP (gross national product) 226 Goh Chok Tong 234, 277; East Asia proposal 223–225 Gorbachev, Mikhail 98 Grieco, Joseph 294, 295, 304 gross domestic product (GDP) see GDP (gross domestic product) gross national product (GNP) see GNP (gross national product) Guérot, Ulrike 4, 41–58 Haacke, Jürgen 7, 150–171 Haas, Ernst 18, 24, 313, 314–315 Habermas, Jürgen 53 Haine, Jean-Yves 10, 239–264 Hallstein, Walter 314 Hamilton-Hart, Natasha 6, 11, 109–127 Hanoi, ASEAN+3 meeting held in (1999) 224 Hashimoto, Ryutaro 228 Headline Goal objectives 46, 248, 249, 251, 259 hegemony 27–28, 72, 292; ‘cooperative’ 296; France as hegemonic power 297–298; Germany as hegemonic power 297 Hellman, Donald 220 Helsinki summit, Headline Goal objectives 46, 248, 249, 251, 259 Hernandez, Carolina G. 151 Higgott, Richard 2, 3, 17–38 Hix, Simon 23 Hobbes, Thomas 317, 318 Hoffmann, Stanley 42 Hong Kong, SARS cases in 273 Hungary, EU negotiations 188 Hussein, Saddam 253 IAEA (International Atomic Energy Agency) 254 IAI (Initiative for ASEAN Integration) 213, 281 Ibrahim, Anwar 269, 277 IDEA (Initiative for Development in East Asia) ( Japan) 232 IGC (Intergovernmental Conference) (EU) (1996) 133–134 IGC (Intergovernmental Conference) (EU) (2003–14) 131, 132, 139, 140, 142–143, 147; Irish Council presidency 142 IISS (International Institute for Strategic Studies) (UK)

Index 329 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Ikeda, Yukihiko 223 ILO (International Labour Organization) 211 IMF (International Monetary Fund) 9, 79, 110, 270; bailout packages 112; CMI, link to 112, 113; surveillance functions 113 Indo-Chinese enlargement 8, 199–217; ASEAN-6 (original) 202, 208; ASEAN economic integration and 203–206; governance, regional economic 212–214; local resistances 210–212; neoclassical/neo-liberal propositions 207; regional integration see regional economic integration (Indo-Chinese enlargement) Indonesia: ASC, proposal for 7; ASEAN, role in 4, 59–68, 163–164; Communist Party 61, 62; consolidation 63–66; domestic capacity for change 280–281; as ‘first among equals’ (primus inter pares) 4, 60, 67; FTAs 121; Jakarta see Jakarta (Indonesia); and Myanmar, political events at 153; New Order period 61, 62, 63, 66, 67; wars in (1990s) 9; wealth distribution 212, see also CSIS (Centre for Strategic and International Studies) (Indonesia) inflation targeting 102 Initiative for ASEAN Integration (IAI) see IAI (Initiative for ASEAN Integration) Initiative for Development in East Asia (IDEA) ( Japan) see IDEA (Initiative for Development in East Asia) ( Japan) Initiative for Reinforcing ASEAN Integration 232 institutional reform, conflicts 6–7 institution building, leadership in 74–75; bargaining 72; cooperation, learning 81–82; devotion 74, 75–76; domestic leadership 70–71; international leadership 71–72; Japan and China, bringing together 79–80; optimism 74, 75; path selection 78–79; pragmatism 74, 76–77; skill 75, 77–78 integration: de facto/de jure 24, 34; economic see economic and monetary integration; in Europe 132; regional see regional economic integration (Indo-Chinese enlargement); regional integration; trade initiatives 117–123 INTERFET (International Force for East Timor) 271 intergovernmentalism 292 Internal Market Programme (1985) 87, 91 internal market programme 5, 87, 91, 94 International Atomic Energy Agency (IAEA) see IAEA (International Atomic Energy Agency) International Forum on Myanmar (Bangkok process) 154, 155

International Institute for Strategic Studies (IISS) (UK) see IISS (International Institute for Strategic Studies) International Labour Organization (ILO) see ILO (International Labour Organization) International Monetary Fund (IMF) see IMF (International Monetary Fund) International Police Task Force (IPTF) (UN) see IPTF (International Police Task Force) (UN) international political economy (IPE) see IPE (international political economy) international relations (IR) see IR (international relations) IPE (international political economy) 19 IPTF (International Police Task Force) (UN) 249 IRA (Irish Republican Army) 252 Iran, nuclear programme 55 Iraq crisis 4, 10, 54; implications for transatlantic relations 51–53; preventative war 252–253 IR (international relations) 18, 19, 21; institution building 71 Irish Republican Army (IRA) see IRA (Irish Republican Army) Jakarta (Indonesia) 153, 160, 163, 164, 165; AMM (1996) 222, 223; Ministerial Meeting at (2004) 155; and neighbouring countries 60, 61–62, 64; Vietnam, support from 165 Japan: Asian Monetary Fund and 20; Asian Monetary Fund, proposals for see AMF (Asian Monetary Fund); bilateral relations (ASEAN) 228, 305; China and 5, 9, 72–74, 78, 79–80, 81, 231; FTAs 118–119; Initiative for Development in East Asia see IDEA (Initiative for Development in East Asia) ( Japan); Ministry of Economy, Trade and Industry (METI) 230, 231; Ministry of Foreign Affairs (MOFA) 229; Official Development Assistance (ODA) 232; Singapore and 118; US, alliance with 73 Jayakumar, S. (Singapore’s foreign minister) 156 Jayasuriya, Kanishka 35 Jemaah Islamiyah ( JI) 265, 272 JHA ( Justice and Home Affairs) 131, 136, 143 Johnson, Lyndon B. 303 Joint ASEAN-World Bank Initiative on Mainstreaming Social Development 213 Joint Communiqué of the 36th AMM (Asian Ministerial Meeting) 155 Joint Declaration for Cooperation to Combat International Terrorism (2002) 272 Joint Vision 2020 250 Jospin, Lionel 45, 50

330 Index 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Kagan, Robert 317, 318, 319 Kane, Michael 70 Kant, Immanuel 317, 318 Katzenstein, Peter 303 Kawaguchi, Yoriko 232 Khoan, Vu 211 Kim Dae Jung 76, 227 Kobe Research Project 115–116 Koh, Tommy 222 Kohl, Helmut 44, 93–94, 97, 98, 100 Korean War 298 Kosovo conflict: and European Security and Defence Policy (ESDP) 10, 245–247 Kuala Lumpur, East Asian summit (1997) 31, 224, 229–230 Kuan Yew, Lee 76, 225, 226 Kurth, James 312 Labour Code 211 labour market reform 95 Laeken, EU summit (2001) 50, 140 Laos, economic reform programme (1986) 202, 203 Latin American Free Trade Area 18 Laursen, Finn 7, 131–149 leadership: ASEAN+3 (ASEAN Plus Three) 72–74; ASEAN’s consolidation and 63–66; domestic 70–71; entrepreneurial 72; in institution building see institution building, leadership in; integrative bargaining and 71–72; intellectual 72; international 71–72; in international organizations 59–60; moral capital and 70; in regional integration 4–5; structural 72; transformational 70 Leadership ( J. Burns) 70 Lee Kuan Yew 76, 225, 226 Lewitt, Kurt 70 Luxembourg European Council, SEA agreed at (1986) 94 Maastricht Treaty (1992) 7, 100; Amsterdam Treaty and 133; co-decision procedure 133, 144; Danish rejection 136; EU formation 131; European Commission, effect on 316; Franco-German relations 44, 45, 48; QMV 132; ratification by UK 101; summit 242; see also TEU (Treaty on European Union) Mahathir, Mohamad (Malaysian PM) 75, 76, 163, 221, 222 Mainstreaming Social Development (MSD) see MSD (Mainstreaming Social Development) Malaysia: exchange rate regimes 116, 123; Export Processing Zones (EPZ) 25; FTAs 121; Philippines and 66 Malaysian Federation 61, 62 Manila, ASEAN summit (1987) 66 Manila Framework 110

Mannesmann (German corporation) 106 MAPE (Multinational Advisory Police Element) 249 Marcos, Ferdinand 276 Marshall Plan 298 Mattli, Walter 292 Mekong Basin Development Cooperation 213 MERCOSUR (Mercado Común del Sur) (Common Market of the South) 17, 131, 293 METI (Ministry of Economy, Trade and Industry) 230, 231 Milosevic, Slobodan 243, 245 Ministry of Economy, Trade and Industry (METI) see METI (Ministry of Economy, Trade and Industry) Ministry of Foreign Affairs (MOFA) ( Japan) see MOFA (Ministry of Foreign Affairs) Mitterrand, François 43, 44, 93, 94, 97 Miyagawa, Makio 228–229 MNCs (multinational corporations) 3, 26, 205 MOFA (Ministry of Foreign Affairs) ( Japan) 229 Mollet, Guy 301 monetary targeting 102 monetary union: benefits 103, 104, 105; German unity and 97–101; meaning 103–107; transition to 93–101; see also economic and monetary integration Monnet, Jean 146, 147, 294, 314 MONUC (United Nations Organization Mission in the Democratic Republic of Congo) 254 Moravcsik, Andrew 131, 144, 145, 147, 297, 316 Mori, Yoshiro 228 Moro Islamic Liberation Front (MILF) MPF (Multinational Protection Force), Albania 249 MRP (Mouvement Républicain Populaire) 300 MSD (Mainstreaming Social Development) 213 MSU (Multinational Specialized Units) 249 multilateralism 12, 256, 257, 302, 303, 318 Multinational Advisory Police Element (MAPE) see MAPE (Multinational Advisory Police Element) multinational corporations (MNCs) see MNCs (multinational corporations) Multinational Protection Force (MPF), Albania see MPF (Multinational Protection Force), Albania Multinational Specialized Units (MSU) see MSU (Multinational Specialized Units) mutual recognition principle, and open markets 90

Index 331 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Myanmar: ASEAN’s censure of (2003) 152; Aung San Suu Kyi (ASSK) see ASSK (Aung San Suu Kyi), Myanmar; Bangkok Process (International Forum on Myanmar) 154, 155; democracy movement, suppression 7; Depayin, violence at see Depayin (Myanmar), violence at (2003); diplomatic and security culture and 153–157; National League for Democracy (NLD) 153, 155; Phnom Penh, Retreat at 153, 156; State Peace and Development Council (SPDC) 153, 154, 161, 163 NAC-C (North Atlantic Cooperation Council) 177 NAFTA (North American Free Trade Agreement) 17, 131, 219, 220, 293; EAEC and 222 Natalegawa, Marty 159 National Haze Action Plan 271 National League for Democracy (NLD) (Myanmar) see NLD (National League for Democracy), Myanmar NATO (North Atlantic Treaty Organization) 9, 43, 46, 97, 177, 242; Berlin Plus Agreement with (2002) 239, 251, 253; collective self-defence 249; nuclear deterrence 98 NCW (Network Centric Warfare) 250, 251 NEC (Network Enabled Capability) (UK) 250 neo-functionalism 18, 19, 24, 144 Nesadurai, Helen E. S. 8–9, 199–217 Network Centric Warfare (NCW) see NCW (Network Centric Warfare) Network Enabled Capability (NEC) (UK) see NEC (Network Enabled Capability) Neustadt, Richard 70 New Miyazawa Initiative 112 NGOs (non-governmental organizations) 3, 26, 74, 214 Nice Treaty (2001) 7, 46, 49, 52, 131, 137–139, 138; Charter of Fundamental Rights 139; co-decision procedure 133; and constitutional treaty, draft 141; QMV 132, 137; side payments 146; voting formula 141 NLD (National League for Democracy), Myanmar 153, 155 Non-Aligned Movement 65; Indonesia as founding member 61 non-discrimination, principle of 90 non-interference principle 7, 152, 153; breach 155–157; impact on regional responses 276–277; Indo-Chinese enlargement and 8 North American Free Trade Agreement see NAFTA (North American Free Trade Agreement)

North Atlantic Cooperation Council (NAC-C) see NAC-C (North Atlantic Cooperation Council) North Atlantic Treaty Organization (NATO) see NATO (North Atlantic Treaty Organization) Nyunt, General Khin 154, 155 Obsolescence of Regional Integration Theory (E. Haas) 18 Obuchi, Keizo 228 ODA (Official Development Assistance) ( Japan) 232 OECD (Organization for Economic Cooperation and Development) 107, 226, 295, 302 Official Development Assistance (ODA) ( Japan) see ODA (Official Development Assistance) ( Japan) Ohmae, Kenichi 25 Operation Alba (Albania) 1997 249 Operation Allied Harmony (Macedonia) 2003 253 Operation Altea (Bosnia) 2004 251 Operation Artemis (Democratic Republic of Congo) 2003 254–255, 257 Operation Concordia (Macedonia) 2003 251, 257 Ople, Blas (Philippines’ foreign minister) 156 Organization for Economic Cooperation and Development (OECD) see OECD (Organization for Economic Cooperation and Development) Pacific Economic Cooperation Council (PECC) see PECC (Pacific Economic Cooperation Council) Paris Accord, Cambodia, withdrawal of Vietnamese troops from 65 Paris Peace Agreements (1991) 201 Paris summit (1972) 88, 95 Partnership for Peace (PfP) see PfP (Partnership for Peace) PECC (Pacific Economic Cooperation Council) 221 Pempel, T. J. 32 Pershing IA missiles 98 Peru, SAU meeting 2004 1 Petersberg tasks 244 Petri, Peter 313 PfP (Partnership for Peace) 177 Philippines: FTAs 121; Malaysia and 66; ‘People Power’ revolution (1986) 276 Pinheiro, Paulo Sergio 162 Pitsuwan, Surin 150, 151, 166, 226 Plan for Enhancing Human Resources Development and Human Resources Exchanges (East Asia) (Obuchi Plan) 228

332 Index 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

PMC (Post-Ministerial Conference) (ASEAN) 223, 224, 229 Poitiers, bilateral meeting in (1997) 45 Poland, EU negotiations 188 Political and Security Committee (PSC) see PSC (Political and Security Committee) Politique Internationale 45 Post-Ministerial Conference (PMC) (ASEAN) see PMC (Post-Ministerial Conference) (ASEAN) power: American, and European idealism 317–319; in international relations 294; leadership and 4–5; see also leadership; soft 255–257 PPP (purchasing power parity) 176 pre-emption concept 258 preferential trade agreements (PTAs) see PTAs (preferential trade agreements) Presidential Power (R. Neustadt) 70 Prodi, Romano 256 PSC (Political and Security Committee) 46, 247 PTAs (preferential trade agreements) 28, 34 purchasing power parity (PPP) see PPP (purchasing power parity) Putnam, Robert 194 QMV (Qualified Majority Voting) 94, 133, 144, 145; Amsterdam Treaty 134, 135; constitutional treaty 141, 143; ICG 142; Nice Treaty (2001) 132, 137 Rapid Reaction Force 248 Razali Ismail, Tan Sri 153, 161, 162–163 Reagan, Ronald 92, 98 Red Army Faction 252 regional crisis management, and security 9–10 regional economic integration (Indo-Chinese enlargement): governance, implications for 212–214; local resistances 210–212; normative convergence in economics 202–203; political sustainability 206–210; prospect for 201–206; socio-economic divide and 208–210; see also regional integration Regional Haze Action Plan (RHAP) see RHAP (Regional Haze Action Plan) regional integration: economic, Indo-Chinese enlargement see regional economic integration (Indo-Chinese enlargement); economic and monetary cooperation and 5; inconvenient integration realities and 291–296; integration and 5–6; international context 3; leadership and power in 4–5; political 1–2 regionalism: ASEAN+3 (ASEAN Plus Three) 225–229; Asian financial crisis, following 2, 3, 20–24, 225–229; in East Asia 19–20,

229–233; globalization and 35; microregionalism 26–27; monetary 30–33, 35; ‘new’ 21, 26; north–south 22; ‘proper’ 23; regionalization and 17, 24, 27; regulatory, moving towards 33–36 regionalization 289; economic 25; globalization and 34; regionalism and 17, 24, 27 regional theory and practice 17–38; bilateral trade, and 3, 28–30; first wave theorizing 17, 20–21, 26; future developments 26–27; globalization 22, 24, 34; hegemony 27–28, 72, 292; ‘hyperglobalist’ literature 25; inconvenient integration realities 291–296; intergovernmental theory 19; monetary regionalism, and East Asian Economic Community 30–33; neo-functionalism 18, 19; past developments 18–24; present issues 24–26; regionalism see regionalism; ‘second wave theorizing’ 18; spillovers 18, 19, 20; transactionalist integration theory 291, 294, 296 RHAP (Regional Haze Action Plan) 271, 275 Rice, Condoleezza 252 Rome, Treaty of (1957) 144; amendment 94; economic and monetary integration (Europe) 87, 88, 89, 90, 95, 301, 302; ECSC treaty and 302 RPR (Rassemblement Pour la République Française) 48–49 Rumsfeld, Donald (US Defense Secretary) 52 Ryacudu, Ryamizard 159 SAARC (South Asian Association for Regional Cooperation) 64 SADC (Southern African Development Community) 17 Saint-Malo process: European Security and Defence Policy (ESDP) 46, 241, 247, 247–251, 257; Franco-British Declaration (1998) 46, 246 Salonika summit (2003) 255 Sarajevo: European Security and Defence Policy (ESDP) 261 SARS (Severe Acute Respiratory Syndrome) 234, 265, 273–274 Sathirathai, Surakiart (Thai foreign minister) 154, 161 SAU (South American Union) 1 Scalapino, Robert 233 Schengen agreement on border controls, Amsterdam Treaty and 134–135 Schmidt, Helmut 103 Schröder, Gerhard 4, 45, 47, 51, 52 Schuman Plan (1950) 132, 298, 299 SEA (Single European Act) 7, 89, 90, 94, 95, 144; QMV 132

Index 333 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

SEATO (Southeast Asia Treaty Organization) 61 security, and regional crisis management 9–10 Segal, Gerald 312 September 11 2001 (9/11) terrorist attacks 54, 252, 265; regional security issues following 3, 33, 34, 272–273 Severe Acute Respiratory Syndrome (SARS) see SARS (Severe Acute Respiratory Syndrome) SGP (Stability and Growth Pact) (1997) 44, 45, 55, 104, 105 Shumbun, Nihon Keizai 226 Siazon, Domingo 221, 226–227 Siedentop, Larry 298 Singapore: free trade sector 29, 119, 122; Institute of Defence and Strategic Studies (IDSS); Japan and 118; US and 165 Single European Act (SEA) see SEA (Single European Act) single market programme 17, 18 Smith, Adam 206 Social Chapter, Britain’s signature 134 Social Democratic Party (SPD), Germany 50, 97, 301 Soeharto (Indonesian president) 269 SOEs (state-owned enterprises) 205, 210 soft power: European Security and Defence Policy (ESDP) 255–257 Solemn Declaration on European Union, Stuttgart European Council 94 Solana, Javier 247 SOM (Senior Officials’ Meeting), ASEAN South American Union (SAU) see SAU (South American Union) South Asian Association for Regional Cooperation (SAARC) see SAARC (South Asian Association for Regional Cooperation) Southeast Asia Treaty Organization (SEATO) see SEATO (Southeast Asia Treaty Organization) Southern African Development Community (SADC) see SADC (Southern African Development Community) South Korea and ASEAN, leadership in institution building see institution building, leadership in sovereignty-pooling 35, 132, 144 Soviet Union, former, nuclear diplomacy 97 Spaak, Paul-Henri 314 Spain, Euskadi Te Askatusuna (Basque separatist organization) 252 SPD (Sozialdemokratische Partei Deutschlands), Germany 50, 97, 301 SPDC (State Peace and Development Council), Myanmar 153, 154, 161, 163

spillover effect: economic and monetary integration 87, 88; regional theory 18, 19, 20 Stability and Growth Pact (SGP) (1997) see SGP (Stability and Growth Pact) state-owned enterprises (SOEs) see SOEs (state-owned enterprises) State Peace and Development Council (SPDC), Myanmar see SPDC (State Peace and Development Council) Story, Jonathan 5–6, 87–108 Strasbourg summit (1989) 100 Strauss, Franz-Josef (Bavarian leader) 98 structural funds, enlargement negotiations, conflicts during 191–193 Stuttgart European Council, Solemn Declaration on European Union 94 subsidiarity principle 139 Suharto, General (Indonesian leader) 4, 60–61, 64; fall of 67; tut wuri handayani (‘leading from behind’), notion of 66 Sukarno, President (Indonesian leader) 60, 61 Sukarnoputri, Megawati 159 Suma, Rizal 158 supranationalism 19, 131, 132, 146–147, 302, 312 Sweden, New Defence programme 251 TAC (ASEAN’s 1976 Treaty of Amity and Cooperation) 158 Tang, Shiping 5, 11, 69–84 TEC (Treaty Establishing the European Community) 136 Telecom Italia 106 Terada, Takashi 9, 11, 218–236 terrorism 252, 265; Al Qaeda 252, 255, 272; ASEAN Centre for Combating Terrorism 266; see also September 11 2001 (9/11) terrorist attacks Tervueren initiative (2003) 241 TEU (Treaty on European Union) 136, 248 Thailand: free trade and 29; wealth distribution 212 Thatcher, Margaret 94–95, 96 trade integration initiatives 117–123 Trade Rights on Intellectual Property Services see TRIPS (Trade Rights on Intellectual Property Services) transactionalist integration theory 291, 294, 296 Treaty of Amity and Cooperation (TAC) see TAC (Treaty of Amity and Cooperation) Treaty Establishing the European Community (TEC) see TEC (Treaty Establishing the European Community) Treaty on European Union (TEU) see TEU (Treaty on European Union)

334 Index 1111 2111 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Troika mechanism 153, 275, 276, 280 Turkey, EU accession 55 Tuschhoff, Christian 8, 175–198 Twin Towers attacks see September 11 2001 terrorist attacks UDF (Union pour la Démocratie Française) 48 Umehara, Katsuhiko 230 UN (United Nations) 230; Charter 256; International Police Task Force (IPTF) 249; Iraq crisis 251, 253; Organization Mission in the Democratic Republic of Congo (MONUC) 254; Security Council 51, 162, 254; see also UNDP (United Nations Development Programme); United Nations Secretary General (UNSG) UNDP (United Nations Development Programme), ASEAN-UNDP Partnership Facility 213 United Kingdom: Action Programme for Employment and Growth 94; EU membership, French objection to 42; Franco-British tandem, creation 55–56; International Institute for Strategic Studies (IISS); Labour Party, European agenda 134; Maastricht Treaty, ratification 101; monetary union and 104; Network Enabled Capability (NEC) 250 United Nations see UN (United Nations) United Nations Development Programme see UNDP (United Nations Development Programme) United Nations Secretary General (UNSG) see UNSG (United Nations Secretary General) United States: China and 73; dollar see dollar (US); Europe, relations with 52–53; Federal Reserve 88, 103; Japan, alliance with 73; National Security Strategy (2002) 255; nuclear diplomacy 97; Singapore and 165 UNSG (United Nations Secretary General) 153 Uruguay Round trade negotiations (GATT) 73, 76, 222

U Win Aung (Myanmar’s foreign minister) 153, 154 Vance, Cyrus 243 Védrine, Hubert 47 Vientiane, summit at (2004) 160 Vietnam: ASEAN’s policy towards 201; economic reform programme (1986) (doi moi) 202, 203; industrial unrest 210–211; Ministry of Labour, War Invalids and Social Affairs 211 Washington Treaty (1987) 98 Weapons of Mass Destruction (WMD) see WMD (Weapons of Mass Destruction) Webber, Douglas 1–13, 11–12, 289–311 Weber, Max 70 Werner Plan, and monetary union 88 Western Europe: cold war and 240; high political integration in 2, 17, 296–303 WEU (Western European Union) 98, 244, 249 WHO (World Health Organization) 273 Wirayuda, Hassan 159 WMD (Weapons of Mass Destruction) 254, 255–256, 258 World Bank, Joint ASEAN-World Bank Initiative on Mainstreaming Social Development 213 World Health Organization (WHO) see WHO (World Health Organization) World Trade Center attacks see September 11 2001 terrorist attacks WTO (World Trade Organization) 28, 230; see also GATT (General Agreement on Tariffs and Trade) Yeo, George 231 Yokoo, Hidehiko 229 Yong, Ong Keng 156, 161 Young, Oran 71–72, 78 Yugoslavia, former: wars in 9; see also Bosnia; Kosovo conflict Zhu (Chinese premier) 232–233 ZOPFAN (Zone of Peace, Freedom and Neutrality) 64; Declaration (1971) 158

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