Saleem M. Khan*

_Introduction  

Asia Pacific Economic Cooperation (APEC) was launched in 1989.  It is currently aiming at redefining itself within the broader scope of “open regionalism” (in socio-economic policies of trade, investment and human capital) and the economic challenges of the 21^st century. South Asia Association for Regional Cooperation (SAARC) has an identical economic agenda. APEC’s concept is anchored in the Treaty of Rome, the founding document of the European Community (EC).  Its formative phase extends over two decades - 1980s and 1990s.  During this short period, APEC has made substantial progress towards establishing itself as a strong regional economic group.  It has achieved its initial goals of strengthening multilateral trading, promoting investment flows, and determining common economic interests.  It has also played a critical role in containing the adverse effects of the Asian financial crisis of 1997.

In adherence to its future direction, APEC continues to promote its objectives of open trade, investment, and a strong sense of regional community. It appears to be ready to meet “new challenges in the New Century,” in particular the challenge of the “new economy”.1 Its readiness to look beyond 1990s, and accepting the challenges and opportunities in the 21^st century, suggests its future direction.  The approaches of deeper integration and progressive industrialization and continent-based grouping within the framework of liberal economic reforms and geo-economic factors are APEC’s core issues. These are the keys to meeting its agenda for “building the future of Asian economies.” These approaches aim at promoting the well being of the people in Asia Pacific countries, and expanding the economic potential of the region in the decades ahead. The road map of economic development is a dynamic concept for improving the South Asian socio-economic profile. This paper is an attempt to put into perspective these approaches and issues because they are critical to the success of “open regionalism” which are part of APEC and SAARC strategies.

The approach of open regionalism is a modified version of the original concepts of economic regionalism and free trade area. It is considered the forerunner of outward-looking policies and a leading vehicle for achieving the objectives of economic growth, open trade, and global investment.2 Initially, the European Community adopted the doctrine of economic regionalism in 1958.3 At that time, economic regionalism outside Europe was viewed as an instrument of inward-oriented policies and “fortress mentality.”  By the 1970s, when outward-looking policies had begun to succeed, economic regionalism was upgraded to  “new regionalism” embodying the concepts of open trade and export-led growth.  Since the late 1980s, this term has been modified to “open regionalism” to promote deeper integration and formulate creative policies toward open trade, investment, growth, and development.  The paradigm of open regionalism suits APEC’s vision and agenda for 21^st century, which is largely a framework of openness and is conducive for SAARC’s socio-economic agenda.

In the contemporary environment of global interdependence and competitiveness there is general recognition that the framework of open regionalism would be instrumental for APEC in developing and modifying its agenda based on “geo-economic” considerations, continent-based grouping, and short- and long-term economic imperatives in the region.4 It is in the context of advancing APEC’s vision and agenda that the debate on the relevance of open regionalism and its instruments has become even more crucial. APEC’s vision and agenda of region-based integration and free trade and investments when examined closely provides likely opening for SAARC’s  membership. Indeed South Asian leadership should recognize this opportunity and prepare the SAARC to achieve this goal in a timely manner. This initiative has the potential for an economic break through for South Asia.

The scope of the paper is a narrow one, specifically focusing on a few key challenges regarding APEC perspectives beyond 2001. It begins by describing the recent trends in regional integration, followed by discussion on APEC and SAARC’s  rapidly evolving frameworks, and the issues of deeper integration and progressive industrialization. It then examines the issue of potential transition from an intercontinent to a continent-based cooperation and studies the case of economic regionalism in SAARC. The paper concludes with a few suggestions.  

World Trends in Regional Integration  

In the contemporary international economic environment, the trend towards regionalism and economic globalism is on the rise.  At a time when the division of the world into major trading blocs is emerging as the trend of the future, open regionalism is emerging as a continent-based framework.  The orientation of EU, the most successful regime of economic integration, from the very outset has been a continent grouping.  The guidelines for enlargement, agreed upon at its Summit in Nice in December 2000, confirm the continuation of this trend.  All thirteen candidate countries for EU membership are from central and eastern Europe.  The economic integration of the European continent will eventually stretch from Ireland across to the Baltic States and to Bulgaria in the South East. 

The newly emerging regional groups are embracing a continent-based paradigm, as is obvious from the recent developments in the field.  The proposed integration of the Americas into a single market, to be completed in January 2005, will be a continent grouping including all countries of North and South America.  The Americas’ single market will stretch from the Bering Strait to Cape Horn, encompassing 34 countries with a total population of 800 million and a combined GDP of almost $12.5 trillion.5

            On July 11, 2001, the African leadership endorsed a plan to launch a continent-based African Union model similar to the EU and the other emerging economic unions.  Economic integration among Africa’s 53 countries, with a population of about 850 million and an estimated GDP of $800 billion, is aimed at substantially reducing import tariffs and dismantling non-tariff barriers to trade and investment.  It is also planning to create a central bank and common currency for the entire African continent.6

            Lately, even some smaller regions are coming aboard economic integration.  The Caribbean Community (Caricom) announced on July 12, 2001 that it would integrate its 14 member countries, with a cumulative market of 13 million people, by the end of this year.  It will promote trade in services, free movement of capital, progressive dismantling of barriers to trade, and a regime of common tariffs on imports from non-member countries.  Plans are also being drawn to establish a regional court to adjudicate trade disputes and to create a common currency administered by a regional monetary authority.7

On the basis of these global trends, it is reasonable to expect that the future Asian regime of economic integration will be a continent-based one.  It’s likely membership would comprise Asia Pacific countries, East Asia and South Asia.8   The Asian Economic Union (AEU), as it most likely would be named eventually, will bring into its fold more than 30 countries with a combined GDP of over $9.5 trillion and more than half of the world’s population – 3 ½ billion people. It is interesting to add here that South Asian economies have found the expression of their aims in SAARC. Its programme is consistent with WTO rules and continues to make progress toward its broader goals of economic liberalization.

A chronology of other events across the world since economic integration was introduced as an experiment, indicate strong trends in economic regionalism.  The enlargement of the EU, the establishment of a monetary union in Europe, the launching of the North American Free Trade Agreement (NAFTA) in December, 1993, the ongoing negotiations for an Asian Free Trade Area (AFTA), and in July, 1994, creation of the ASEAN Regional Forum (ARF) – a multilateral security group with regional economic aims that includes China, Russia, the United States and 15 other members, and the 1994 initiative towards free trade area arrangements in the Americas, point toward widening and deepening regionalism around the world.  Most of these economic blocs are being promoted in the spirit of open regionalism, and to strengthen their respective competitive positions in global markets.9

            Parallel developments in the success of the Uruguay Round of the GATT and the initiatives of World Trade Organization (WTO) are proving to be balancing instruments to any threat of inward-looking regionalism, trade retaliation, or indirect protection.  How well these institutions will succeed in achieving their goals of liberalizing trade services and investment flows, given the restrictive trade practices of both the US and the Europeans, is not yet certain.  In any case, all these events reveal mixed progress on the restructuring of trade patterns, foreign direct investment (FDI) liberalization, and the achievement of competitiveness in the global economy.10

            No less significant is the impact of economic globalism on a wide range of economic issues, including regional integration.  The forces of economic globalism are creating a rush toward economic integration through rapidly changing global economic relations and patterns in the context of the changing relations.  The economic marginalization of the poorest countries in the wake of economic globalism is a vivid example.  The inadequacy of current trade, investment, and debt relief arrangements is obvious from their failure to lift poor countries from poverty.  They have apparently been helped little by the benefits of economic globalism that are so apparent in the industrialized economies.  The gulf between rich and poor nations is actually widening.  Poor nations had expected that such undesirable trends should have been reversed through more liberal measures for trade and investment, but the process is awfully slow, painful, and clearly inefficient. 

The changing patterns of trade and investment liberalization, the deregulation of international financial flows, the internationalization of technology transfer and production systems, demographic factors and labour movement across international borders, and a trend towards the harmonization of economic institutions are pivotal impulses of economic globalization.  These changes in economic pattern have not produced the long-awaited effects of accelerated growth and rising income in poor countries.  On the contrary, the poor countries consider these patterns in particular, impediments to their growth and development prospects.11   Protests such as those in Seattle against the ill effects of economic globalism are not uncommon these days.  The violent events in Genoa, Italy show that frustrations are building due to such slow change in the status quo.

These relations and patterns, if they evolve on a basis of providing mutual gains to rich and poor countries alike, should go a long way to address the current global concerns about slow development and increasing poverty.  Such trends should serve as a stark reminder to the Asia-Pacific leaders as well as other countries as they review their strategies and search for innovative approaches to achieve greater regionalization, enhance development dynamism, gain a higher degree of competitiveness in world markets and shared economic prosperity. Familiarity with the existing APEC framework is the key to gaining a more accurate perspective beyond 2001 for the Asia-Pacific economies.  It also describes the perspective for South Asian membership.  

The Evolution of APEC and SAARC Frameworks  

APEC’s framework from the very outset has been called flexible and formative.  Some students of integration describe APEC as a “moving target”.12  The roots of economic cooperation in Asia can be traced to pre-1989 period.  The current phase merits it’s beginning to increasing interdependence of regional economies and recent negative effects of economic globalism in Asia Pacific indicate a need for practical remedies and effective economic cooperation.  The obvious preference among APEC economies was for a more consultative approach to cooperation, and some sub-regional groups were not in favour of EU style integration.  For instance, ASEAN group opposed the creation of a EU style institutional and legal structures and supranational bureaucracies which could erode national sovereignty.13  

Table-1 Profile of APEC Framework           

Year	Major Event/Subject	Objectives/Outcomes
1957     1980’s (early)   Pre- 1989         1990     1991           1992       1993           1994         1995       1996     1997           1998 – 2001                   2001and beyond	Treaty of Rome     New regionalism   APEC established Meeting site - Canberra       APEC ministerial session Meeting site – Singapore   APEC declaration of objectives Meeting site – Seoul         APEC’s Secretariat established Meeting site – Bangkok     Inaugural meeting of seventeen leaders of the Asia Pacific economies Meeting site – Blake Island, USA     Bogor Declaration Meeting site – Bogor       Osaka Action Agenda to implement Bogor Declaration Meeting site – Osaka   Manila Action Plan Meeting site – Manila   Asian financial crisis started in Thailand         New APEC Themes – -Meeting new challenge in new century -Achieving common prosperity through participation and cooperation         Continent-based cooperation Deeper integration Progressive industrialization	- Launching European Community - Road map for other regions   - Achieving economic liberalization   - Achieving greater economic cooperation among APEC economies - Promoting open trade and investment - Strengthening on-going market reforms   - Providing support toward the successful outcome of the  Uruguay Round   - Ensuring APEC membership to three  giants in Asia Pacific— U.S.A., Japan and China - Granting of APEC membership to  China, Hong Kong,  Taipei   - Establishment of APEC Secretariat - Formation of an advisory Group – Eminent Persons Group (EGP)   -Declared the vision of creating a community of Asia  Pacific economies -Discussed contentious issues opposition to the creation of  a European Community-like organization   -Achievement of the free and open trade and investment  goal by the end of 2010 for industrialized economies and 2020 for developing economies.   -Achieve liberalization and facilitation -Promote economic and technical cooperation   -Begin liberalizing trade and investment starting in 1997   -Crisis was the result of structural weakness in Asian economies, such as – weak financial sectors and poor corporate governance, and underdeveloped and often  neglected social sectors.   -Achieving sustainable growth and equitable development -Meeting the challenges of the new economy – information  technologies -Formulating government sanctioned schemes to assist the poor affected by sharp economic down turn -Investing more in education, health and training   -Using geo-economic map-of-the-world view -Liberalization of trade in services -Free movement of labour -Product standardization -Adopting catch up strategies

 

*  Dutta, M., Economic Regionalization in Asia-Pacific (1999)  

In many respects, APEC’s framework in regard to vision and agenda is significantly unlike EU and NAFTA, such as being open and non-discriminatory.  A yearly profile of decisions and events that highlight their progress toward economic cooperation in the Asia Pacific region is given in the Table above.

It is obvious from this profile that progress on developing an APEC framework, and identifying and determining potential avenues of economic cooperation among the membership, has been rapid and remarkable.  From the start, APEC leadership has aimed at three core issues of economic significance, namely reinforcing multilateral trading relations, promoting investment flows, and determining common economic interests in the Asia Pacific region economies across the Pacific Ocean.  However, the agenda did expand in the years following APEC establishment and more is needed to meet the future challenges. 

The present APEC framework should expand to fully realize the immense potential of the region and to meet all the challenges and opportunities to be found in the 21^st century.  For this purpose, a rapid movement on far deeper integration and more progressive industrialization and continent-based integration in the region is needed. There are similarities between the framework of APEC and SAARC. For example, SAARC also aims to work toward open regionalism and improvements in socio-economic conditions. The charter of SAARC aims to “promote the welfare of the people of South Asia and to improve their quality of life; to accelerate economic growth, social progress and cultural development in the region; to contribute to mutual trust, understanding and appreciation of one anothers problems; and to promote active collaboration and mutual assistance in economic, social, cultural, technical and scientific fields”.14 This evolving framework not only supports a well functioning economic union in South Asia but also shows strong identities with the current and future agenda of APEC as evident from the yearly profile of events and framework of economic integration in South Asia:  

Table-2 Profile of SAARC Framework

 

Year	Major Event – Subject	Objective – Outcomes
1947	Economic union in the subcontinent comes under strain	-Trade disruption
1949	Devaluation of Indian Rupee breaks down economic union in the subcontinent	-Trade halted
1983	Declaration of South Asian Regional Cooperation (SARC)	-Promote trade, investment, cultural ties
1985	South Asian Association for Regional Cooperation (SAARC) established	Areas of intra-regional  cooperation -Agriculture, rural development, tele-com, meteorology, health and population, postal services, science and technology sports, arts and culture, transportation
1987	SAARC Secretariat established	- Effective coordination of SAARC
1995	SAARC Preferential Trading Agreement (SAPTA) became operational	- Streamlining intra-regional trade arrangements
2001	Target date for South Asian Free Trade Area (SAFTA)	- Promoting intra- and inter-regional trade relations
Beyond 2001	New regionalism, trade in the free area	- Liberal economic regime, geo-economic goals

 

Source: SAARC, 1988-95 SAARC Summits, Vols I & II, and Khan, S., SAARC, Journal of Asian Economics (1999).  

Deeper Integration and Progressive Industrialization  

            APEC’s vision of building “the future of Asia Pacific economies” appears to be compatible with its themes of “meeting new challenges in the new century” and “achieving common prosperity through participation and cooperation.”  The question is what programmes and approaches APEC should adopt to achieve its objectives.  Would such measures be beneficial for SAARC economies? Several factors within the framework of deeper integration and progressive industrialization appear to be critical: pursuing the old path of “effective development,” meeting APEC’s “policy challenges,” creating opportunities for the development of poor countries, developing a concrete framework of macroeconomic stability, good corporate governance, and adopting creative development approaches. For establishing a closer regional relationship and dynamic development this vision and agenda of APEC is critical for SAARC to pursue.

            In regard to deeper integration the current pace and scope are both slow and limited in contrast to the earlier enthusiasm for economic cooperation in the APEC region.  This trend may reflect the effects of the Asian financial crisis and the current slowdown in the global economy.  A stronger commitment and increased efforts are needed to make worthwhile progress on the various issues in the area of deeper integration before APEC.  These issues include harmonization of interregional tariff rules, common external tariffs, formulation of an investment code, standardization of products in trade, liberalization of trade in services, free movement of labour, human resource development, environmental renewal and sustainability, employment and growth, convergent macroeconomic targets and deadlines for reaching them, coordination of monetary-fiscal policies to achieve macroeconomic stability, monetary union and single currency, and dispute resolution mechanisms.  However to negotiate mutually beneficial agreements on these difficult issues is very time consuming as the lessons from EU experiences have revealed.

            APEC should reinvigorate the old path of effective development.  The continuing focus on the development of human capital, open trade and investment, old-fashioned hard work and sacrifice, and saving and investment in combination with new approaches would surely restore a high rate of growth.15 Meeting “APEC’s future socioeconomic policy challenges” is the key to evolving a process to achieve sustainable growth and effective development in the long run.  Special attention should be paid to the APEC Economic Committee’s work that helps enhance understanding of the domestic and international causes of the Asian Crisis and its recommendation for future directions.16  Domestic problems, according to the committee report, have been associated with weaknesses in the domestic financial sector, inflexible exchange rates, and poor corporate governance.  The international problem is inherently unstable financial markets.  Future strategies to fix these structural weaknesses should be to strengthen the financial sector and corporate governance and to develop a comprehensive set of social policies.  Strong social policies are crucial for achieving sustainable and equitable growth over time.

            The development of the poor countries in the APEC region is linked with the economic opportunity available to them in the union.  They have not only to develop rapidly but also to succeed in “catch-up” goals.  For this purpose they need new opportunities in trade and investment, access to wider markets, and relatively free movement of labour within the union.  Only a liberal economic framework and generous help from the richer partners can help move this process as former West Germany committed to its eastern partner after reunification in 1989. APEC should adopt a model of macroeconomic stability through coordination of monetary-fiscal policies in a regional compact.  As a strategy it should aim at macroeconomic criteria of manageable inflation rates, lower budget deficits as percent of GDP, lower current account deficits, and maintaining strong and stable economic fundamentals.  The EU has successfully used this approach for macroeconomic stability in the past.  The outcome of the monetary union and single currency regimes in the EU can serve as a guide for further policy directions for the APEC. In order to achieve efficient corporate governance, the challenges of managing corporate businesses should be handled in partnerships between managers and investors.  The investors together with managers are well positioned to improve baseline rules for high performing investment portfolios.  Better and stricter baseline rules can deliver a worthwhile change in the APEC region since current business management lags behind the governance curve.

The process of progressive industrialization within the scope of the “convergence theory” and “flying geese” model can be initiated by dividing APEC’s current/proposed membership of 21/30 economies, into three proposed groups: (1) industrially advanced economies, (2) newly and other industrialized economies and (3) industrializing economies.  Industrially advanced economies refer to those that have reached post-industrial status and are the richest societies in the union.  Many industrialized economies in APEC are at a relatively high stage of development, but need catching up in order to reach the status of industrially advanced economies.  Industrializing economies within the union are on the lowest rung of the economic ladder.  Most of them need market access, capital resources, and know-how for “take off” and “catch-up” strategies.  They need support in realizing “growth convergence” in order to succeed in closing gaps in income and technology levels.  Under each group, the proposed membership by country:  

_{(a)  Industrially Advanced Economies: Australia, Canada, Japan, New Zealand, United States}

_{(b)  Newly and Other Industrialized Economies: Chile, Chinese Taipei, Hong Kong, Korea, Mexico, Russia, Singapore}

_{(c)     Industrializing Economies: Brunei Darussalam, Indonesia, Malaysia, Papua New Guinea, Peoples Republic of China, Peru, Philippines, Thailand, Vietnam.}  

This grouping helps to streamline trade flows, identify investment locations, and select development regions.  Enhanced activities in these areas would not only improve economic performance in each economy, but also promote effective development in the entire region on the pattern of the convergence theory of growth.  
Considerations of the Asian contributed model (Kaname Akamatsu) of “flying geese” for achieving rapid growth rates and shared economic prosperity throughout the APEC region are constructive.  The underlying assumption of the “flying geese” approach is that the sophistication of domestic production will move forward one category at a time.
Also, the flying geese pattern can be seen as the natural outcome of market forces: labour-abundant, capital-scarce economies will be internationally competitive in labour-intensive sectors, such as apparel, and will graduate to more capital or skill-intensive sectors as savings and education deepen the pool of capital and skilled workers.

The application of this doctrine has close similarities to the concept of progressive industrialization and fits well into the development agenda of the APEC economies.  In a hypothetical case of three proposed categories in which all member economies are placed, each economy in a designated category according to its level of development would gradually move up to the next level of development. This is possible by following the pattern of economies just ahead of them in the APEC industrialization process.  In their scheme of the arrangements, for example, category B economies of Hong Kong and South Korea take over leadership from Japan (category A economy) in automobiles and electronics as Japan moves into higher tech sectors of information technology and advanced capital goods.  Within the course of time, when Japan enters into advanced high tech sectors (super computers) and the space sector, the field becomes open for Hong Kong and South Korea to establish themselves in the production of high tech sectors and capital goods, while China, India, Vietnam (category C economies) move into automobiles and electronics. 

While the above changes are in progress, flying-geese strategies invigorate trade and investment activities.  Radelet and Sachs note that the flying-geese approach, working through export-led activities, creates:  

An enclave economy hospitable to foreign investors and integrated into the global economy, without the problems of infrastructure, security, rule of law, and trade policies that plague the rest of the economy. Asian governments introduced several variations of the export platform, including export processing zones (EPZs), bonded warehouses, special economic zones, and duty drawback systems. Governments supported these institutions with macroeconomic policies that strengthened the incentives for labour-intensive exports, especially via appropriate exchange rates.17  

            These programmes and approaches can substantially enhance short-run and long-run growth prospects in the region. 

APEC’s current framework incorporates most of these objectives.  It has made substantial progress in pursuing the goals of economic cooperation, expanding trade, liberalizing investment, and creating a greater sense of community.  It has already paid needed attention to the issues of deeper integration and more progressive industrialization.  Currently it is engaged in tackling the remaining problems of financial crisis and dealing with the new challenges posed by the present global economic downturn and the emergence of a new economy.  These experiences and lessons are of great value for SAARC. One of the urgent issues for the APEC leadership is choice of the future model of economic cooperation – should it embrace the concept of continent-based integration and geo-economic considerations or continue to work with the present one?  

Potential Transition from Inter-continent to Continent-based Cooperation  

            The rise of a nation’s economic status as the dominant force in the world affairs especially after the breakup of the Soviet Union is an event of historic importance.  It signifies a turning point in economic thinking from the predominance of the Cold War influences to an era of relative peace and prosperity under the approaches of democracy and economic liberalization. Since the old “imperial economic regime” founded on geo-politics started diminishing, the new liberal economic regime based on geo-economics has begun to emerge. In the new thinking, a country or a region’s ability to improve economic positions is being linked to an inter-play between the geographic and economic factors in place of geographic and political factors. This strategic change was deemed essential due to the rising demands of democracy and economic uplift in the new century.

            It is interesting to note that in the post World War II era super powers under imperial economic regime adherent to geo-political agenda pursued macroeconomic policies of monetary and fiscal stability and the supply of free “international public goods.”18 These policies eventually led to superpower hegemony. In a world at conflict that emerged in the wake of superpower rivalry, precious economic resources were wasted for containment strategies and war purposes. The doctrine of liberal economic regime based on geo-economic considerations does not promote hegemonic tendencies. It is a development-oriented concept furthering the goals of economic liberalization, deeper integration, and progressive industrialization.

Geo-economics at least in practical terms is rapidly becoming the core concept, which provides the foundation for an economic regionalization approach in the new global economic order.  Professor Dutta emphasizes this point stating that in the new era “if global cooperation is yet to be operational, the next best choice is regional economic cooperation.  Geo-economics, maps a common economic space on to a common geographic space, replacing geo-politics”.19 Geo-economics redefines the framework of regional economic cooperation by articulating a common vision of economic development and a sense of belonging together to a region for dynamic development and economic pluralism.  It also meets the criteria of freedom and peace that focuses on 21^st century vision of democratic societies, economic reforms, free trade and equitable development.

            In consideration of these economic changes on the world landscape the importance of providing the foundation for an economic regionalization paradigm in the APEC region during new era lies in adopting and influencing a programme of geo-economics.  A closer examination of the map-of-the-world view of a region underlines the significance of open regionalism, and builds a strong case for continent-based cooperation for APEC and other regions.  

            The geo-economic oriented continent model facilitates a degree of economic freedom and development potential which outweighs the benefits of free “international public good” such as defense, security, and monetary-fiscal stability provided by the geo-politics oriented Cold War model of imperial economic regime.  Also, from the perspective of geo-economic reality, the practicality of a close economic relationship “between the western and eastern edges of the Pacific” is now in doubt.20 In other words, supposing if trans-atlantic cooperation is not effective than the longer-term chances of the trans-pacific cooperation are not encouraging.  This is why continent-based cooperation offers to be a more practical model of open regionalism.  Therefore, emerging landscapes of economic integration in Africa, Asia, Europe and Americas, if modeled on continent-based grouping, should result in strong intra-regional as well as inter-regional arrangements.  These are expected to become an effective vehicle for promoting growth and development, not only just in those continents but also around the globe. 

The future economic prospects for an APEC continent grouping embracing South Asia and other economies within the fold of Asia are very promising.  This conclusion is supported by historical experience when growth rates in Asian sub-regions are compared to other groupings in the world economy.  Prior to the Asian financial crisis, the economic achievements of most Asian regions were held up as models of effective development.  For example, from 1965 to 1995, per capita income increased more than seven fold in the Asian tiger economies and about four fold in Southeast Asia and China.21 South Asian countries also exhibited respectable growth in their per capita income.  During the decades of 1980s and 1990s, per capita GDP average growth rates in the Asian sub-regions were substantially higher than those of lower and upper income countries and the rest of the world.   

Table -3 Asia-Pacific Sub-Regions

(Per Capita GDP Growth Rate – 1980-1999)

 

 

Sub-regions                1980-90                       1990-99           1980-99

 

East Asia & Pacific          8.0                               7.4                    7.7

South Asia                       5.7                               5.7                   5.7

China                           10.1                            10.7                10.4

Australia                          3.4                               3.8                   3.6

New Zealand                   1.7                               2.9                  2.3

Lower middle income      4.0                               3.4                   3.7

Upper middle income       2.5                               3.6                   3.1

World                             3.2                               2.5                   2.9

 

Source:  World Development Report 2000/2001, World Bank.

 

These indicators of economic performance not only reveal the high level of past achievements, but also point towards the strong future potential of Asian sub-regions.  The past record of their achievements has been credited to “old fashioned hard work and sacrifice” of the people of the Asia-Pacific region.  They saved and invested, employed more workers, concentrated on education and better economic management.22 This is an exceptional performance and attests to the Asia-Pacific region as an area of dynamic development and exceptional economic potential.

            Trends regarding future growth and trade in the APEC region are indeed encouraging indicators.  Estimates of long run growth rate of 2.7 percent indicate that APEC economies have the potential to continue to grow dynamically over the next ten years.  This strong growth will help move the APEC economies to higher level of industrialization and economic development and further narrow income gaps among member countries.

Table-4 Estimated Future Economic Growth

(Annual real GDP growth rates, %)

 

 

                                                            APEC

                                                                                                                                                                        Total            NIEs                                              ASEAN

 

Projection (2000-2010)         2.7                                                                 5.3            6.1

Actual (1990-1996)               2.8                                                                 6.8            7.2

                                                                                                                    

                                                                       

Source:  APEC Economic Committee Staff  Estimates 2001.  

            Projection of future trade in the Asia Pacific region, as compared to world totals, is also promising.  Total trade (measured by exports of APEC economies) will expand by 6.9 percent a year over the next decade.  APEC economies with an annual growth rate of 6.9 percent in trade will significantly outpace the growth in the world’s total trade – 3.6 percent a year.  As a result, the projected share of APEC trade in the world will be 66 percent in 2010, rising from 47 percent in 1999. Supposing these targets will be realized, we will find strong performance and expanding economic potential in the APEC economies.  

Table-5 Estimates of Future Trade

(Annual export growth rates, %)

 

                       

                                                            APEC              World

Total                Total

                                   

Projection (2000-2010)                        6.9                   3.6

Actual (1990-1996)                 10.1                 7.7

 

Source:  IME, International Financial Statistics

Note:     Only exports of goods, export of services not included.

            Export growth is measured in nominal terms.  

Moreover, the economic interests of the Asia-Pacific region and North and South America are better served by staying exclusively within a continental framework, as the EU model has proved and geo-economic conditions confirm.  Australia and New Zealand are natural economic partners of the Asian economies, while the US and Canada are better suited to an Americas grouping.  In a geo-economic sense it is worthwhile for Asia-Pacific to enlarge eastward to include South Asia, while the future of the Americas lies in integrating all the economies of the Americas into a single free trade area and linking South American economies to the massive North American economy.  Also, the US and Canada in their Quebec Declaration, have pledged a leadership role in advancing the cause of NAFTA and its enlargement to include the 34 countries in North and South America that shows their commitment and economic interest are now linked more to the American continent rather than to Asia. 

            Focusing on Asia or transforming into a continent-based grouping within regional economic cooperation appears to be a strategic choice for APEC.  This potential change from inter-continent to continent-based grouping would be expected to create an immediate need to tackle the issue of costs of integration. 

            The restructuring and spreading out of APEC within the framework of a continent grouping from Pakistan to Philippines, will entail substantial costs, and funding issues will dominate the future agenda.  Huge funds will be needed to help industrializing economies to catch up, such as Papua New Guinea, Vietnam, and South Asia.  APEC will have to create a structured funds account that would be earmarked for supplying intra-regional public goods and for accelerating the  process of economic development in the poorer regions.  Other issues, such as liberalizing trade in services and the movement of workers from new member economies to jobs in the industrially advanced economies in the region, would need an early resolution.  In the context of restructuring and enlargement, other regions can learn from the experiences of the EU and the role of its rich members in providing funding for costly yet worthwhile initiatives.  

_{Approaches to Economic Regionalism in SAARC}

Examining the scope of the South Asian regional cooperation, within the framework of a map-of-the-world view of Asian continent and goe-economic factors, entail improved economic prospects for the region. Being part of the map-of-the-world view is a core argument for geo-economics. This means SAARC by adopting the guidelines of geo-economics in its trade and investment policies and taking advantage of opportunities in the global economy can bring closer its aims of accelerated developments in the south Asian region as well as APEC membership.

            Fortunately, with the end of the Cold war the imperial economic regime is being replaced by liberal economic regime as re-arrangement of the global economic affairs is accelerating. There is also a gradual movement away from geo-political to geo-economic considerations. These developments offer excellent opportunities for the South Asian countries especially India and Pakistan to enter into new compacts of peace and cooperation and join hands together on advancing the SAARC vision and agenda. A worthwhile starting premise should be an early action on South Asian Preferential Trading Agreement (SAPTA) and South Asian Free Trade Area (SAFTA).  Without question the continued commitment to the strategy of new regionalism and WTO rules improve SAARC’s profile in the international community.

            After these initial steps and other events of economic significance may soon follow which will make South Asia an active partner in the APEC group and in the global economy. For this purpose the logical next step for the South Asian countries will be to promote the goals of deeper integration and progressive industrialization. Deeper integration in South Asia will entail providing macroeconomic core in terms of monetary and fiscal stability, friendly climate for microeconomic units such as households and business firms, and intra-regional public goods (developmental infrastructure, regional economic institutions, financial services, business and economic education). Simultaneous advancement of progressive industrialization will reinforce regional development. This process will require the establishment of intra-regional industrial parks, chemical complexes, and companies in the technological sector; export zones, and financial centres.

            A matter of equal importance for the South Asian leadership is to articulate arguments in favour of winning the membership of APEC. It can aim at emphasizing such factors as, (1) the regional concept of the “Asian economies” warrants considerations for redefining continent-based integration in Asia. The present Asian Pacific economic integration should extend beyond its current boundaries. There is a strong case for including the SAARC economies along with China since the Asia Pacific regions have developed strong trade and investment links with the South Asian economies with India and Pakistan in particular, (2) Significance of intra-Asian trade, including SAARC region, (3) South Asia’s vast markets, enterprising population and productive economic potential especially India and Pakistan economies and, (4) a contrary scenario in which South Asia would stand deprived of APEC membership and the benefits of the global trade and investments, irrespective of reasons, would be very disturbing.

            Once in the APEC fold it will be convenient for the SAARC economies to freely pursue the objectives of liberal economic regime and adhere to the principles of geo-economics. For example, the map-of-the-world-view of the South Asian region is identical to the vision and agenda of

APEC. APEC policies and programmes will enable the South Asian economies to pursue the goals of new regionalism and intra as well as inter-regional free trade. South Asian countries will be beneficiaries of APEC’s investments and expertise in development economic and human capital since their economic agenda is consistent and complementary to the economic programmes of APEC. Individual South Asian countries will be able to adhere to strict guidelines of economic management as APEC’s rules and policies will have to be complied with. The outcome in South Asia will be accelerated process of economic development.   

            Unfortunately economic potential and regional development in the South Asian countries has been overwhelmed by the political and territorial disputes. These disputes are not new and there are no quick solutions to resolve them. A tactical approach to addressing economic and social issues can be taken up in the region with a great sense of urgency while political and diplomatic efforts are expedited to tackle the protracted issues India and Pakistan should rethink seriously to separate Kashmir from economic issues. Parallels for this approach exist in the contemporary world. For example, China-Taiwan and Russia-Japan are vigorously pursuing trade and investment activities on a bilateral basis despite long grown political and territorial claims. South Asian leadership showing vision, wisdom, and political will should pursue a similar road map.           

_Conclusions  

            Economic regionalism as a concept and as a strategy has been recognized as a practical solution to the major international problems of trade and development. Initial opposition and reservations to the effectiveness of regionalism have largely disappeared. Today most countries across the world are already in the fold of a continent-based regionalism and others are planning to sign in. Economic regionalism appears to be the order of the day and will stay that way till another theory or approach has been developed to ensure economic stability. In recognition of these factors it is not surprising that the APEC and SAARC vision and agenda conform to the broader road map of economic regionalism.

APEC’s policies and performance in the areas of socio-economic development have won international praise. New challenges in 21^st century such as building the “future of Asian economies” and an active partnership in the global economy points to its worthwhile programmes. The strategies of deeper integration, progressive industrialization, and continent-based grouping under the framework of liberal economic regime and geo-economic factors are seriously being debated to implement APEC’s future economic programmes.

 In addition, there are other issues of equal importance before the APEC leadership. One of them is extending APEC membership to other sub-regions and sovereign economies in Asia. For example, the case in support of South Asian membership is reinforcing. Countries like Laos, Cambodia, and Mayanmar are also waiting to win the membership of APEC. These expectations concerning membership in APEC are real for several reasons. First, the expectations are within the scope of a map-of-world view of Asian continent and regional geo-economic factors. Second, all major regional groups such as EU and NAFTA are enlarging within continental boundaries. APEC will benefit from including other Asian countries as new members. Third, South Asia offers vast markets, enterprising population and productive economic base. Other countries also possess enormous economic potential. Fourth, in the emerging 21^st century global economic order, the concept of building regional communities is taking roots. It would indeed be a disturbing development if developing regions and poor countries in Asia stand deprived of APEC membership. It will also be contrary to the spirit of “Asian Community”.

            Overall, APEC’s success in the long-run will depend upon evolving a homogeneous “Asian Community” with strong economic foundations. Therefore, to advance its agenda the APEC leadership should aim at (1) deeper integration, (2) progressive industrialization, (3) continued grouping inclusive of South Asia, (4) geo-economic factors, and  (5) open regionalism. In implementing this enormous undertaking the proposed Asian Structured Fund Account will be a critical factor. This agenda may seem overwhelming, and in accomplishing its objectives the programme will take decades to complete but, in the end, its rewards will be very tangible and enormous in size.n

---