Miles Kahler is Rohr Professor of Pacific International Relations and Distinguished Professor of Political Science in the School of International Relations and Pacific Studies and the Department of Political Science, University of California, San Diego. He was Founding Director of the Institute for International, Comparative, and Area Studies at UCSD. Recent publications include Networked Politics (editor).
Andrew MacIntyre is Professor of Political Science and serves as College Dean and Director of the Research School of Asia & the Pacific at the Australian National University. Recent publications include Crisis as Catalyst, Asia’s Dynamic Political Economy (co-editor).

Integrating Regions

ASIA IN COMPARATIVE CONTEXT

By Miles Kahler, Andrew MacIntyre

Stanford University Press

Copyright © 2013 Asian Development Bank
All rights reserved.
ISBN: 978-0-8047-8364-4

Contents

Contributors………………………………………………………viiAcknowledgments……………………………………………………ixPart One. Introduction……………………………………………..1 Regional Institutions in an Era of Globalization and Crisis MILES
KAHLER……………………………………………………………3Part Two. The Design of Regional Institutions…………………………2 Institutional Design of Regional Integration: Balancing Delegation and
Representation SIMON HIX…………………………………………..313 Regional Judicial Institutions and Economic Cooperation: Lessons for
Asia? ERIC VOETEN…………………………………………………584 The Potential for Organizational Membership Rules to Enhance Regional
Cooperation JUDITH G. KELLEY……………………………………….78Part Three. Regional Comparisons: Latin America and Europe……………..5 Regional Economic Institutions in Latin America: Politics, Profits, and
Peace JORGE I. DOMINGUEZ…………………………………………..1076 Why the EU Won KEVIN H. O’ROURKE………………………………….1427 Economic Crises and Regional Institutions C. RANDALL HENNING…………170Part Four. Asian Regional Institutions: Future Convergence?…………….8 The Organizational Architecture of the Asia-Pacific: Insights from the
New Institutionalism STEPHAN HAGGARD………………………………..1959 Contingent Socialization in Asian Regionalism: Possibilities and Limits
AMITAV ACHARYA…………………………………………………….222Part Five. Conclusion………………………………………………10 The Future of Asian Regional Institutions ANDREW MACINTYRE AND JOHN
RAVENHILL…………………………………………………………245Bibliography………………………………………………………267Index…………………………………………………………….293

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 members in existing or new regional regimes. Institutions withdifferent decision rules, commitment devices, and membership rules will bemore or less effective in the promotion of these ends.

Decision Rules: Winning Consent to Cooperative Agreements

Although the international legal regime posits the sovereign equality of states,any regional or global institution must contend with disparities in underlyingbargaining power among its members. Decision rules reflect those disparities.A one country, one vote system, based on majoritarian decision rules, isunlikely to satisfy more powerful member states with significant outside options.One solution awards more powerful members greater influence overoutcomes of particular interest to them through informal rules (Stone 2011).Another relies on consensus decision-making, which permits opposition fromany member to defeat proposed actions or commitments. Even institutionsthat adopt formal majoritarian or qualified majoritarian decision rules arelikely to introduce other mechanisms to produce de facto consensual outcomes.Among regional groupings, the European Union (EU) has venturedfurther than any other in adopting decision-making by qualified majority. AsHix (chapter 2) points out, however, national governments in Europe havecarefully hedged those outcomes by requiring a unanimity rule for delegationof additional authority to European institutions, by insuring equal representationon the EU’s executive body, and by instituting checks and balances andhigh thresholds for decision.

Consensus decision rules guard against defection—from the organizationor from its decision—on the part of discontented minorities. They also discouragebacksliding, since cooperative commitments can only be modifiedthrough the same procedures. Consensus imposes a steep tradeoff betweencommitment and decisiveness, however. The prospect of an agreement that isdifficult to change or one that will be effectively enforced may produce protractedbargaining and frequent failures of collective action (Fearon 1998). Inthe face of a crisis or a rapidly changing environment, institutions that strainfor consensus may fail to produce timely changes of course. The disappointingrecord of Asian regional institutions during the Asian financial crisis has beenattributed in part to the region’s attachment to consensus decision-making.

Commitment Devices: Political Engagement,Legalization, and Enfranchisement

The history of regional agreements is littered with ambitious commitmentsthat are not implemented. Particularly when new commitments deepen economicintegration, extending regional collaboration into domains of domesticsensitivity that arouse political opposition, current or future governmentsmay renege on those agreements or slight their implementation. To countersuch temptations, regional institutions often contain embedded commitmentmechanisms and instruments for monitoring and enforcement.

The mobilization of high-level political commitment, particularly at the launchof new institutions and new national undertakings, is one such device. Involvementof top political leaders signals possible costs to those within the governmentwho fail to implement the new agreement and engages the reputationof leaders in the success of the regional enterprise. Regional commitmentsare also reinforced if national political institutions, such as legislatures and bureaucracies,are part of the process of ratification and implementation, renderingregional institutions truly intergovernmental rather than “inter-executive”(Dominguez, chapter 5; Martin 2000). Successful regional institutions that affectsignificant national policy domains are seldom purely technocratic; visibledomestic political commitments are required to sustain them.

Legalization is another institutional instrument for bolstering commitment.Legalization is measured on three dimensions: precision of international commitments;obligation or the degree to which those commitments are legallybinding; and delegation of authority to third parties, such as global or regionalinstitutions, to interpret, monitor, and enforce those commitments (Goldstein,Kahler, Keohane, and Slaughter 2001). Delegated authority is often interpretedas a marker of whether regional institutions are strong or weak. Theother dimensions of legalization can substitute for delegation, however. Preciseand binding commitments, such as those in NAFTA, may produce highlevels of compliance without substantial delegation of authority to regionalinstitutions. Delegation risks the creation of institutional agents who willpursue their own interests rather than those of the contracting governments.Member states of the EU, for example, have designed additional institutionsand rules to hedge against such drift away from their preferences (Hix, chapter2). Elaborate institutions do not always signify substantial delegation. Despitea proliferation of regional courts, Erik Voeten (chapter 3) confirms thatthey are rarely used to resolve interstate disputes. In Latin America, delegationto supranational regional institutions has been most helpful in specializeddomains; ambitious region-wide institutions have often failed to exercise thepowers awarded them on paper (Domínguez, chapter 5).

Enfranchisement of non-governmental actors, such as corporations orcitizens, also serves as a commitment mechanism in regional governance.Compliance constituencies, mobilizing outside the self-protective cartel ofnational governments, use courts and other dispute settlement mechanismsto reactivate the integration process, to interpret agreements, and to preventbacksliding by governments. As Voeten (chapter 3) describes, rules for enfranchisementin regional courts contribute directly to their effectiveness.Commitments by governments are rendered more credible by the ability ofnon-state actors to participate in enforcement.

Membership Rules and the Widening of Regional Institutions

Judith Kelley (chapter 4) describes two membership models that dominatethe universe of regional institutions. The club model imposes strict admissioncriteria based on prior policy change and thereby awards leverage to existingmembers over the candidate member’s policies. The convoy model is morepermissive, basing membership on geographical proximity (ASEAN) or onad hoc and flexible rules (APEC). Policy change is rarely required in advanceof institutional membership. As regional institutions contemplate admissionof new members, both models may have strengths. Convoy membership organizationsrely on socialization to shape the behavior of members after theyare admitted; Acharya (chapter 9) argues that socialization has succeeded inkey Asian cases. The effectiveness of convoy membership rules appears tobe greatest in the domain of security, where inclusiveness often has positiveeffects. The EU is a notable example of the club model of membership, inwhich a wider array of tools can be deployed before membership to changethe policies of a national candidate (Kelley 2004 and chapter 4).

Manipulation of membership rules is an important means of introducingflexibility into regional institutions when some members wish to pursue newand more ambitious cooperative bargains (Kelley, chapter 4). New institutionsmay be spun off by the “cooperators,” or the existing organization may adoptdifferent categories of membership. If members agree on integration goalsbut disagree on timing, multi-speed integration will allow transitional periodsfor new members. If disagreement over the aims of integration is more profound,variable geometry or à la carte regionalism may be introduced. Underthose membership rules, a single institution recognizes different “integrationspaces.” For example, some members of the EU have opted out of monetaryunion indefinitely (variable geometry); new members must fulfill policy requirementsbefore adopting the Euro (multi-speed membership). A risk offragmentation lies in such flexibility, undermining institutional goals of policyharmonization and economic integration.

Widening, which may produce a larger membership with more heterogeneouspreferences, might also appear to undermine future deepening of regionalcooperative bargains. That tradeoff is dependent on membership rules,however: regional organizations with club membership rules can wield thoserules to exclude members who have not signaled their cooperative intent andharmonized their policy preferences with those of incumbent members. Institutionaldevices, such as the introduction of new decision rules, may also offsetsome of the effects of widening. In Europe, an extension of qualified majorityvoting served to enhance decision-making efficiency as membership grew. Finally,new members may be the most enthusiastic cooperators in certain policydomains. The EU’s newest members in central and east Europe were eagerto join its monetary union, despite demanding entry conditions. In Asia, Indiahas backed regional agreements that liberalize trade in services and establishrules governing foreign direct investment, two areas of deeper integration thatexisting Asian trade agreements have often excluded (Debroy 2009).

The Distinctive Design of Asia Regional Institutions

Although Asian regional institutions have increased in number during the latestwave of regional institution building, they have remained, in the eyes ofobservers outside the region, “shallow” or “thin” (Haggard, chapter 8). Thepreceding review of the dimensions that define such institutions permits amore precise description of their common institutional design.

Although Asia’s regional institutions are hardly uniform, certain characteristicsdefine an “Asian way” of institution building. Decision rules emphasizebuilding consensus, a process that emphasizes persuasion and deliberationrather than decisiveness. Regional arrangements are rarely legalized throughprecise and binding obligations, and governments are reluctant to delegatesubstantial authority to regional institutions. As a result, the monitoring andenforcement powers of most regional institutions are limited. The Asian DevelopmentBank (ADB) is a rare regional example of consequential delegationto an Asian institution. ASEAN has a small secretariat whose operationalautonomy has been carefully circumscribed by member governments. Theleadership of APEC’s secretariat, which is even smaller than ASEAN’s, isseconded from member governments. Despite its economic importance, Asiahas no regional courts (Voeten, chapter 3). Asian regional institutions are alsoexclusively intergovernmental: non-state actors, whether individuals, corporations,or non-governmental organizations (NGOs) are not formally enfranchisedin regional institutions. Finally, Asian regional organizations haveadopted a model of membership that produces heterogeneous convoys ratherthan homogeneous clubs. In all of these characteristics, Asian regional institutionsemphasize preservation rather than pooling of sovereignty; regionalinstitutions avoid intrusions into domestic politics and policy.

Regional Comparisons: Europe, Latin America, and Asia

Whether this institutional syndrome is a complex that is distinctively Asiarequires careful cross-regional comparison. Certainly, each of the enumeratedfeatures of Asian institutions can be found in other regions. ContemporaryEurope has too often served as the benchmark for Asian institutions.As Kevin O’Rourke (chapter 6) describes, however, Europe of the 1950s and1960s provides a more satisfactory benchmark for comparison. It was in thosedecades that Europe took the key decisions that directed its future away fromfree trade agreements—the most common regional economic arrangementin Asia and elsewhere—and toward the more elaborate institutions of today’sEU. Jorge Domínguez (chapter 5) provides an equally illuminating comparison,juxtaposing Asia and the Americas. Like Asia, the Americas combinea major industrialized economy with middle-income developing countries.The Americas, however, have both a longer post-colonial history than Asiaand a record of more institutional experiments. Three clusters of variablesprovide candidate explanations for contrasting institutional design in thesethree regions: structural characteristics of regional economies and their politics;regional dynamics that reinforce or undermine institution building overtime; and contingencies, such as economic crises, that have inflected institutionaldevelopment. Explanations for institutional variation provide a startingpoint for predictions of future regional trajectories, in particular whether theAsian way of institutional development will persist.

Regional Structure and the Pattern of Institutional Development

Three structural characteristics shape the configuration of regional institutions:determinants of convergence or divergence in national preferences; distributionof economic and military power; and relative openness of a regionto the influence of extra-regional powers.
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