CHAPTER 1

Regional Institutions in an Eraof Globalization and Crisis

MILES KAHLER

During three decades of globalization, regional integration and institutionshave flourished. In the 1990s, Europe embarked on the Economic and MonetaryUnion, the United States and its neighbors ratified the North AmericanFree Trade Agreement (NAFTA), and the largest economies of SouthAmerica founded the Common Market of the South (MERCOSUR). Asiaseemed to stand apart, producing a trio of regional institutions that were farmore modest in scope than their counterparts elsewhere—Asia-Pacific EconomicCooperation (APEC), the Free Trade Area (AFTA) of the Associationof Southeast Asian Nations (ASEAN), and the ASEAN Regional Forum(ARF). The Asian financial crisis at the end of the 1990s appeared to mark aturning point, however, exposing the region's vulnerabilities and theineffectiveness of its institutions. The first decade of the new century produced threenew institutional developments: region-wide economic arrangements, suchas ASEAN Plus Three (APT), which were limited to Asian members; innovationin monetary and financial collaboration (APT's Chiang Mai Initiativeand Asian Bond Market Initiative—ABMI), and a proliferation of bilateraland plurilateral preferential trade agreements (PTAs).

Despite this apparent catching-up in Asian institution building, many sawa mismatch between high levels of regional economic interdependence andformal region-wide institutions that continued to lag other regions. An organizationgap persisted in Northeast Asia, where multilateral security structureswere absent and three of Asia's largest economies have failed to complete afree trade agreement that would deepen their existing economic links (Calderand Ye 2010). The wider gap between interdependence and institutions inAsia has "stubbornly refused to close, despite the recent proliferation of bilateraland minilateral PTAs and security dialogues" (Aggarwal and Koo 2008,286, 288). The new Asian regionalism now confronts the aftershocks of theGreat Recession of 2008–2009, a global economic crisis that hardly brushedthe largest emerging economies in Asia and failed to set back the economicprogress of the region. The crisis could increase incentives for defensiveinstitution-building to safeguard against future shocks from the global economy;deeper regional economic integration may also provide the best prospectsfor high economic growth, as Asia's export markets in North Americaand Europe enter a period of sluggish growth.

This volume explains and evaluates the new Asian regionalism and its institutionsin the context of other regions and their institutional architecture.It is an opportune moment for such a reassessment, as the highly elaboratedEuropean regional model faces a sovereign debt crisis, and Asian economiesseek more secure sources of growth among their immediate neighbors. Thethree sections of the volume investigate variation in regional institutions,comparing Asia to Europe, the Americas, and other regions. The first sectionoutlines the key dimensions of institutional design and their implications forthe performance of regional institutions, in Asia and elsewhere. A rigorouscomparison is impossible without agreement on precisely defined features ofthe institutions that are to be compared. In the second section, the regionaltrajectories of Europe and the Americas are compared to Asia in an effort toexplain their respective constellations of regional institutions. In light of thesecomparisons, in the third section and conclusion, Asia's regional institutionsare evaluated: have they contributed to regional integration and cooperativeoutcomes? Will the region sustain a different model of institutionalization,convergent on the rest of the world, given changes in the regional and globalenvironments?

The Design of Regional Institutions

Three key dimensions of institutional design vary across regional institutions:decision rules; commitment devices, such as legalization and enfranchisement;and membership rules. These design features reflect regional characteristics,the dynamics of regional economic integration, and the interestsof cooperating governments. They also influence the effectiveness of theseinstitutions in forging and implementing cooperative bargains to promote regionaleconomic integration.

Depending on the elements of their design, institutions can contribute toat least three ends related to economic integration: consolidating existing liberalizationgains, undertaken unilaterally or multilaterally; deepening integration,by expanding the scope of regional agreement, and particularly including theremoval of barriers to exchange behind national borders; and widening economicintegration, through the development of infrastructure or the incorporationof new...