fi The Political Economy of the Asia Paci c Editor VinodK.Aggarwal,UniversityofCalifornia,Berkeley,CA,USA · Vinod K. Aggarwal Min Gyo Koo Editors Asia’s New Institutional Architecture Evolving Structures for Managing Trade, Financial, and Security Relations 123 ProfessorVinodK.Aggarwal ProfessorMinGyoKoo UniversityofCalifornia YonseiUniversity BerkeleyAPECStudyCenter DepartmentofPublicAdministration 802BarrowsHall 134Shinchon-dongSeodaemun-gu Berkeley,CA94720-1970 Seoul120-749 USA Korea [email protected] [email protected] ISBN 978-3-540-72388-2 e-ISBN 978-3-540-72389-9 DOI 10.1007/978-3-540-72389-9 LibraryofCongressControlNumber:2007936183 (cid:2)c 2008Springer-VerlagBerlinHeidelberg Thisworkissubjecttocopyright.Allrightsarereserved,whetherthewholeorpartofthematerialis concerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation,broadcasting, reproductiononmicrofilmorinanyotherway,andstorageindatabanks.Duplicationofthispublication orpartsthereofispermittedonlyundertheprovisionsoftheGermanCopyrightLawofSeptember9, 1965,initscurrentversion,andpermissionforusemustalwaysbeobtainedfromSpringer.Violations areliabletoprosecutionundertheGermanCopyrightLaw. Theuseofgeneraldescriptivenames,registerednames,trademarks,etc.inthispublicationdoesnotimply, evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevantprotectivelaws andregulationsandthereforefreeforgeneraluse. Production:LE-TEXJelonek,Schmidt&VöcklerGbR,Leipzig Coverdesign:eStudioCalamarS.L.,Girona,Spain Printedonacid-freepaper 987654321 springer.com Preface Can regional and interregional mechanisms better institutionalize the in- creasing complexity of economic and security ties among states in North- east, Southeast, and South Asia? As the international state system under- goes dramatic changes in both security and trade relations in the wake of the Cold War’s end, the Asian financial crisis, and the attacks of Septem- ber 11, 2001, this question is now of critical importance to both academics and policymakers. Still, little research has been done to integrate the analy- sis of both regional security and economic dynamics within a broader con- text that will give us theoretically informed policy insights. Indeed, when we began our background research on the origin and evo- lution of Asia’s institutional architecture in trade and security, we found that many scholars had focused on individual subregions, whether North- east, Southeast or South Asia. In some cases, scholars examined links be- tween Northeast and Southeast Asia, and the literature often refers to these two subregions collectively as “Asia”, artificially bracketing South Asia. Of course, we are aware that as products of culture, economics, history, and politics, the boundaries of geographic regions change over time. Yet the rapid rise of India and its increasing links to East Asia (especially those formed in the early 1990s) suggest that it would be fruitful to examine both developments within each subregion as well as links across subregions. The recent debates over whether an Asian-specific institution should in- clude only the ASEAN states along with China, Japan and Korea (the so- called “ASEAN Plus Three”) or also Australia, New Zealand, and India, il- lustrates the highly contested nature of what “properly” constitutes “Asia”. Moreover, we found that the study of Asian institutions tends to separate the analysis of security matters from the analysis of economic matters, fail- ing to address key linkages between the two. In an effort to better understand how regional and interregional mecha- nisms are likely to evolve, we began with the oft-noted erosion of the “San Francisco System.” This arrangement, codified largely through the 1951 San Francisco Peace Treaty between the U.S. and Japan, provided Asian nations with a bilateral-multilateral institutional mix. It offered many East Asian states access to the U.S. market in return for a bilateral security alli- ance with the U.S. It also encouraged America’s Asian allies to participate in broad-based multilateral forums such as the United Nations, the General Agreement on Tariffs and Trade (GATT) and its successor organization, vi Preface the World Trade Organization (WTO). Yet countries in South Asia did not directly participate in these arrangements and countries within the Soviet sphere of influence (such as China) were clearly excluded. As we argue in our introductory chapter, we find it useful to examine how this traditional institutional equilibrium in Asia has come under heavy strain in what we term the post-“triple shocks” period following the Cold War, the 1997-98 financial crisis, and the attacks of 9/11. We then analyze the resulting im- plications of these shocks and longer-range trends such as the rise of China and India on the creation of a new institutional architecture using an insti- tutional bargaining game approach. We are well aware that the construc- tion of a new institutional architecture in Asia is a work in progress. Yet at the same time, we believe that it is timely from both a theoretical and pol- icy perspective to examine the shifts we are seeing so as to shed light on the likely trends and implications of these dramatic changes for both Asia and the rest of the world. This book has been generously supported by the Center for Global Part- nership of the Japan Foundation (CGP). Its current director, Akihiko Mu- rata, has been extremely supportive of our research effort. CGP Program Associate Carolyn Fleisher has been a steadfast supporter of this research. Her help and prompt attention to our endless requests have considerably lightened our burdens. The financial assistance we received from the CGP allowed us to host two major conferences at the University of California at Berkeley and at the East-West Center in Honolulu. These meetings and opportunities for interaction have greatly strengthened our work and also helped to build enduring ties among scholars that geographically span more than half the globe. At our first meeting in Berkeley in December 2005, we benefited greatly from the insights and comments of Pradeep Chhibber, Jonathan Chow, Beverly Crawford, Ellen Frost, Mujeeb Khan, Jin-Young Kim, and Kenji Kushida. We would like to particularly single out the help we have re- ceived from Seung-Youn Oh, who not only provided logistical and organ- izational support for the conference, but also lent her expertise as a dis- cussant. Our second meeting, held in Honolulu in December 2006 at the East- West Center, benefited from discussants from both the University of Ha- waii and the East-West Center. They included Muthiah Alagappa, Sumner La Croix, Chung Lee, Chris McNally, and Peter Petri. Jonathan Chow of the Berkeley APEC Study Center (BASC) not only served as a discussant and rapporteur, but also worked closely with the East-West Center staff to manage the conference. We are especially grateful to Nancy Lewis, Direc- tor of the East-West Center Research Program, Eugene Alexander’s logis- tical support, and Charles Morrison’s encouragement of this project. Preface vii We also benefited from comments and suggestions from the participants of the 2006 International Studies Association’s annual meeting held in San Diego and the East Asian regionalism conference organized by the Center for International Studies at the University of Southern California in spring 2006, which was in part supported by the CGP. We especially thank Peter J. Katzenstein, Gilbert Rozman, T.J. Pempel, Peter Rosendorff, Saori Katada, Mireya Solis, Young-kwan Yoon, Akiko Fukushima, Chaibong Hahm, and Seungjoo Lee for their constructive feedback on our framework paper. The work of BASC staff proved crucial. Without the help of Project Di- rector Jonathan Chow, this book would never have seen the light of day. He has helped in providing comments to the paper writers and managed the publication process, greatly easing the editors’ workload, and making what at times seemed impossible appear easy. In these tasks, a number of undergraduates also assisted in helping to organize the Berkeley confer- ence, edit papers, and prepare the manuscript for publication. For their help, we are particularly grateful to Robert Chen, Sean Fahle, David Guarino, Michelle Haq, Annie Ho, Rohit Jain, Christine Kao, Patricia Kim, Nikhil Kumar, Vivek Narayandas, Michael Ricci, Renee Schneeber- ger, Akash Suri, Jessica Vu, and Linh Vuong—all of whom have worked or currently work at BASC as part of the Berkeley Undergraduate Re- search Apprenticeship Program. We have also been particularly fortunate to benefit from the administrative support of Amy Chi, Serene Lo, and Tami Driver who kept the project on track. We are deeply grateful to Niels Peter Thomas of Springer Verlag for seeing the merit of this book. It is also a privilege to be the first book in the series entitled “The Political Economy of the Asia Pacific” that Vinod Ag- garwal will edit for Springer. We, of course, remain responsible for any errors or omissions. Vinod K. Aggarwal Min Gyo Koo Berkeley, California Seoul, Korea Contents Preface........................................................................................................v Contributors............................................................................................xiii Abbreviations...........................................................................................xv 1. Asia’s New Institutional Architecture: Evolving Structures for Managing Trade, Financial, and Security Relations..........................1 VINOD K. AGGARWAL AND MIN GYO KOO 1.1 Introduction......................................................................................1 1.2 Traditional and Emerging Institutional Balances in Asia.................3 1.3 Modes of Economic and Security Governance in Asia....................7 1.4 Analyzing Asia’s Institutional Architecture...................................14 1.5 Overview of the Book.....................................................................25 1.6 Conclusion......................................................................................30 2. Asia’s New Economic Institutions......................................................35 JOHN RAVENHILL 2.1 Introduction....................................................................................35 2.2 Turning Points: Overcoming the Cold War Divide........................36 2.3 Turning Points: The Financial Crises of 1997-98...........................38 2.4 The 9/11 Attacks and Asian Economic Institutions........................47 2.5 The Rise of China...........................................................................48 2.6 Extending the Region to South Asia...............................................52 2.7 Making Sense of Asia’s New Institutional Architecture................54 3. Building Asian Security Institutions Under the Triple Shocks: Competitive, Complementary or Juxtaposed? .................................59 KEIICHI TSUNEKAWA 3.1 Changing Threats and Changing Institutions..................................59 3.2 Asian Security Institutions in the Cold War Era.............................62 3.3 Asian Security Institutions in the Post-“Triple Shocks” Period.....65 3.4 The Future of Asia’s Institutional Architecture for Security..........83 x Contents 4. Regional Arrangements for Trade in Northeast Asia: Cooperation and Competition between China and Japan.....................................89 MIE OBA 4.1 Introduction....................................................................................89 4.2 Northeast Asia’s Cold War Institutional Equilibrium in Trade......90 4.3 Negotiating New Trade Arrangements in the Post-“Triple Shocks” Period...............................................................................92 4.4 Conclusion....................................................................................114 5. Security Institutions in Northeast Asia: Multilateral Responses to Structural Changes.......................................................................121 MIN YE 5.1 Introduction..................................................................................121 5.2 An Overview of Northeast Asian Security...................................122 5.3 The Cold War Legacy: The Korean War and the San Francisco System..........................................................................................124 5.4 The Post-“Triple Shocks” Period: Regional Shocks and Northeast Asian Security Institutions...........................................................129 5.5 Future Scenarios for Northeast Asian Security............................145 5.6 Conclusion....................................................................................148 6. Southeast Asia’s New Institutional Architecture for Cooperation in Trade and Finance........................................................................151 HELEN E.S. NESADURAI 6.1 Introduction...................................................................................151 6.2 Southeast Asia and Regional Economic Cooperation in the 1970s and 1980s............................................................................155 6.3 New Regional Cooperation Schemes in the 1990s: APEC, AFTA and APT.............................................................................158 6.4 Implications of Southeast Asia’s New Institutional Arrangements................................................................................173 6.5 Conclusion.....................................................................................176 7. Southeast Asia’s New Security Institutions.....................................181 RALF EMMERS 7.1 Introduction..................................................................................181 7.2 The Cold War Institutional Equilibrium in Security....................183 7.3 New Security Arrangements in the Post-“Triple Shocks” Period 190 7.4 Future Scenarios for Southeast Asian Security............................205 7.5 Conclusions and Implications.......................................................209 Contents xi 8. India’s Shifting Trade Policy: South Asia and Beyond.................215 VINOD K. AGGARWAL AND RAHUL MUKHERJI 8.1 Introduction..................................................................................215 8.2 The Cold War Security and Economic Environment...................216 8.3 The Evolution of India’s External Economic Policies in the Post-Cold War Era........................................................................222 8.4 The Future of India’s Trade Policy: Scenarios.............................249 8.5 Conclusion....................................................................................252 9. The Evolution of Post-Cold War Regional Security Institutions in South Asia...........................................................................................259 ESWARAN SRIDHARAN 9.1 Introduction...................................................................................259 9.2 The Cold War Security Architecture in South Asia......................264 9.3 Negotiating New Security Arrangements in the Post-“Triple Shocks” Period..............................................................................267 9.4 Scenario Analysis for Regional Security Arrangements in South Asia.....................................................................................282 9.5 Conclusions and Implications.......................................................284 10. The Past, Present, and Future of Asia’s Institutional Architecture......................................................................................289 VINOD K. AGGARWAL AND MIN GYO KOO 10.1 Introduction................................................................................289 10.2 Evaluating an Institutional Bargaining Game Approach to Explaining Asian Institutional Change.......................................291 10.3 The Evolution of Economic and Security Institutions in Asia...294 10.4 Subregional Developments.........................................................296 10.5 The Nexus between Trade and Security.....................................302 10.6 The Future of Asia’s New Institutional Architecture.................304 Index........................................................................................................309 Contributors Vinod K. Aggarwal is Professor of Political Science, Affiliated Professor at the Haas School of Business, and Director of the Berkeley APEC Study Center at the University of California at Berkeley. Ralf Emmers is Associate Professor and Head of Studies in the S. Rajaratnam School of International Studies, Nanyang Technological University. Min Gyo Koo is Assistant Professor in the Department of Public Administration, Yonsei University. Rahul Mukherji is Associate Professor in the Centre for Political Studies, Jawaharlal Nehru University. Helen E. S. Nesadurai is Senior Lecturer in International Studies in the School of Arts and Sciences, Monash University Malaysia. Mie Oba is Associate Professor in the Graduate School of Management of Science and Technology, Tokyo University of Science. John Ravenhill is Professor in the Department of International Relations at the Research School of Pacific and Asian Studies, Australian National University. Eswaran Sridharan is Acting Secretary-General and Academic Director, University of Pennsylvania Institute for the Advanced Study of India, New Delhi. Keiichi Tsunekawa is Professor of Political Science in the Graduate School of Arts and Sciences, University of Tokyo. Min Ye is Assistant Professor of International Relations at Boston University