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Varieties of regional economic institutionalization: Europe, North America, and East Asia compared

ProQuest Dissertations and Theses, 2009
Dissertation
Author: Ji Young Choi
Abstract:
This study examines why different levels of economic institutional arrangements have been formed across three major economic regions: Europe, North America, and East Asia. We can identify three similarities in regional economic institutionalization across the three regions: (1) External pressures and challenges such as wars, financial crises, and severe region-wide economic downturns served as catalytic events for starting negotiations for a regional economic project; (2) Constructing a regional institution was a counterbalancing action vis-à-vis other major powers or regions; (3) Economic interests along with policy needs led to an interstate consensus on building a regional economic institution. In spite of these similarities, widely different institutional forms were produced across the three regions. My research illustrates that although power relations and economic interests have been at work, the policy ideas of key political actors who participated in major decisions on regional projects were the major determinants of divergent institutional arrangements across the three regions. In short, an idea-based approach better explains the varieties of regional economic institutionalization than power-based and interest-based ones, which are grounded in rational-functionalist logic.

TABLE OF CONTENTS

Page

LIST OF TABLES..….…………………………………………………...........................v

LIST OF FIGURES………………………………………………………………………vi

LIST OF ACRONYMS………………………………………………………….............vii

ABSTRACT……………………………………………………………………….............x

CHAPTER I: INTRODUCTION ………………………………………………………....1

1. Identification of the Problem and Research Questions.……………………………..1

2. Literature Review.…………………………………………………………………...5

3. The Argument and Research Strategy.…………………………………………….16

4. Case Selection Issues and the Limits and Significance of Research.……………...24

5. Chapter Outline.…………………………………………………………………....29

CHAPTER II: DEEP ECONOMIC INSTITUTIONALIZATION IN EUROPE.…….…32

1. Introduction.………………………………………………………………………..32

2. Historical Background.……………………………………………….……............38

3. The Start of European Economic Institutionalization: The ECSC and the EEC.….43

4. The Deepening of European Economic Institutionalization: The SEA.…………...56

5. Summary.…………………………………………………………………………..65

iv

Page

CHAPTER III: SHALLOW ECONOMIC INSTITUTIONALIZATION IN NORTH AMERICA.………………………………………………...67

1. Introduction.………………………………………………………………………..67

2. Historical Background.………………………………………………………….....73

3. External Pressures and the Change of Regional Structures and Contexts.………...77

4. The Role of Ideas in Establishing a Free Trade Area in North America.……….....85

5. Issues on the Role of Interest Groups and the Level of Institutionalization.………94

6. Summary.………………………………………………………………………......98

CHAPTER IV: INFORMAL ECONOMIC INSTITUTIONALIZATION IN EAST ASIA.…………………………………………………….....101

1. Introduction.…………………………………………………….………………...101

2. Historical Background.……………………………………………….…………..105

3. External Pressures and the Change of the Path of Regionalism.…….…………...112

4. Political Rivalry and Divided Leadership in East Asia.……………….………....122

5. The Shadow of the Past and the Politics of Nationalism in East Asia.…….…….131

6. Summary.…………………………………………………………………….…...141

CHAPTER V: CONCLUSION.…………………………………………………….….144

1. The Summary of Cases Studies.……………………………………………….....144

2. The Argument in Brief.…………………………………………………………...152

3. The Prospects of Regionalism and a Future Research Agenda.……………….…154

BIBLIOGRAPHY.………………………………………………………………….…..158

VITA.…………………………………………………………………………………...174

v

LIST OF TABLES

Table Page

Table 1-1: World Merchandise Exports by Region, 2005……………………………….2

Table 1-2: Intraregional Trade Flows in Three Major Regions, 1980-2005……………..7

Table 2-1: Major Developments in the History of European Integration Since 1950…..33

Table 2-2: Intra-western European Trade, 1947-1951………………………………….44

vi LIST OF FIGURES

Figure Page

Figure 1-1: The Patterns of Interstate Relations in a Region…………………………...15

Figure 1-2: The Mechanism of Regional Economic Institutionalization……………….23

vii

LIST OF ACRONYMS

ACFTA ASEAN-China Free Trade Area AFC Asian Financial Crisis AFTA ASEAN Free Trade Area AMF Asian Monetary Fund APEC Asia-Pacific Economic Cooperation APT ASEAN Plus Three ARF ASEAN Regional forum ASEAN Association of Southeast Asian Nations ASEM Asia-Europe Meeting BTAs Bilateral Trade Agreements CCP Chinese Communist Party CEAC Council of East Asian Community CM Common Market CMI Chiang Mai Initiative CU Customs Union CUFTA Canada-USA Free Trade Agreement EAC East Asian Community EAEC East Asian Economic Caucus

viii

EAEG East Asian Economic Grouping EAFTA East Asian Free Trade Area EAS East Asian Summit EC European Community ECSC European Coal and Steel Community EDC European Defense Community EEC European Economic Community EU European Union Euratom European Atomic Energy Community EcU Economic Union EPAs Economic Partnership Agreements FDI Foreign Direct Investment FTA Free Trade Area GATT General Agreement on Tariffs and Trade IGC Intergovernmental Conference IMF International Monetary Fund IPE International Political Economy IR International Relations Mercosur Southern Common Market/ Mercado Común del Sur (Spanish) METI Ministry of Economy, Trade, and Industry

ix MNCs Multinational Corporations MTNs Multilateral Trade Negotiations NAFTA North American Free Trade Area NATO North Atlantic Treaty Organization NEAFTA Northeast Asian Free Trade Area NIEs Newly Industrializing Economies OEEC Organization for European Economic Cooperation PEBC Pacific Basin Economic Council QMV Qualified Majority Voting PRC People’s Republic of China PTAs Preferential Trade Agreements RTAs Regional Trade Agreements SEA Single European Act TAC Treaty of Amity and Cooperation TCU The Treaty establishing a Constitution for Europe

x ABSTRACT

Choi, Ji Young, Ph.D., Purdue University, August 2009. Varieties of Regional Economic Institutionalization: Europe, North America, and East Asia Compared. Major Professor: Ann Marie Clark.

This study examines why different levels of economic institutional arrangements have been formed across three major economic regions: Europe, North America, and East Asia. We can identify three similarities in regional economic institutionalization across the three regions: (1) External pressures and challenges such as wars, financial crises, and severe region-wide economic downturns served as catalytic events for starting negotiations for a regional economic project; (2) Constructing a regional institution was a counterbalancing action vis-à-vis other major powers or regions; (3) Economic interests along with policy needs led to an interstate consensus on building a regional economic institution. In spite of these similarities, widely different institutional forms were produced across the three regions. My research illustrates that although power relations and economic interests have been at work, the policy ideas of key political actors who participated in major decisions on regional projects were the major determinants of divergent institutional arrangements across the three regions. In short, an idea-based approach better explains the varieties of regional economic institutionalization than power-based and interest-based ones, which are grounded in rational-functionalist logic.

1

CHAPTER I: INTRODUCTION

1. Identification of the Problem and Research Questions

Today globalization is one of the most hotly discussed topics among both academics and policy makers. It is however worth noting that globalization has coexisted with regionalization or regionalism, conflicting or reinforcing with one another. Particularly, regional initiatives have exploded since the mid-1980s 1 in the form of Regional Trade Agreements (RTAs) 2 (Bhagwati 1993, 29-31; Katzenstein 2005, 23-24; Mansfield and Milner 1999, 600; World Bank 2000, 1). In particular, three regions stand out in terms of the concentration of economic, financial, and technological activities: Europe, North America, and East Asia. According to the WTO website, as of 2005 the three regions account for around 77 percent of total world merchandise exports (Table 1- 1). It is then noteworthy that the three economic regions are differently organized in terms of the level of economic institutionalization and that why there is this variance is one of important questions in the study of regionalism (Grieco 1997; Kahler 1995; Katzenstein 1997, 2005). One of the purposes of this dissertation is to investigate which factor played the most important role in producing divergent economic institutional arrangements across the three major economic regions.

2 Table 1-1. World Merchandise Exports by Region, 2005 (Billion Dollars and Percentage)

Value Share

World 10159 100.0 North America 1478 14.5 (United States) 904 8.9 (Canada) 359 3.5 (Mexico) 214 2.1 South and Central America 355 3.5 (Brazil) 118 1.2 (Argentina) 40 0.4 Europe 4372 43.0 (EU) 4001 39.4 Africa 298 2.9 Middle East 538 5.3 Asia 2779 27.4 (China) 762 7.5 (Japan) 595 5.9 (India) 95 0.9 (Six East Asian traders) 983 9.7

Source: WTO. http://www.wto.org/english/res_e/statis_e/its2006_e/ section3_e /iii01.xls (June 18, 2009). Note: Asia includes India and others as well as East Asian countries. China, Japan, and six other East Asian traders (the Republic of Korea, Taiwan, Singapore, Hong Kong, Thailand, and Malaysia) account for 23.1 percent of world merchandise exports.

Sometimes it is not easy to define a region clearly because defining the boundary of a region (or defining membership) can be politically contested. As Katzenstein points out, regions are not natural or neutral, but “socially constructed and politically contested

3 and thus open to change” (1997, 7). However, the world can be divided into several major regions in terms of the concentration of economic and social exchanges in the post- Cold War context (e.g., Europe, North America, East Asia, South America, the Middle East, etc.). Although the boundary of a region is fluid, for analytical purposes I simply define a (economic) region as a continent or a subcontinent, which is composed of three or more countries, where economic and social activities are concentrated. It is also worth pointing out that while regionalization and regionalism are sometimes used interchangeably, in a strict sense they represent two somewhat different phenomena. Regionalization is a more or less spontaneous process of increasing economic and social activities across countries in a specific region. On the other hand, regionalism is a political process or project that involves the establishment of regional norms, identity, and institutions (Katzenstein 2002, 105; Kim 2004, 13). Even though we can identify today the rise of regionalization in all three major regions (Europe, North America, and East Asia), there has been variance in the degree of regionalism, particularly regional economic institutionalization, across them. 3 Before examining this variance, it should be understood that there are four different levels of regional economic institutionalization or integration: (1) A Free Trade Area (FTA) – the removal of tariffs in the movement of goods and services; (2) A Customs Union (CU) – FTA + common tariffs toward countries outside a region; (3) A Common Market (CM) – CU + free movement of labor and capital; (4) An Economic Union (EcU) – CM + a common currency and/or the harmonization of monetary, fiscal, and social policies (Ravenhill 2005, 118).

4 Europe has been a forerunner in regionalism and the European Union (EU) is currently the most advanced regional scheme in the world. The EU is an Economic Union (EcU) that adopts the free movement of goods, services, capital and labor, a common currency, and the harmonization of monetary, fiscal, social, and even foreign policies among its 27 members. North America (the US, Canada, and Mexico) succeeded in launching the North American Free Trade Area (NAFTA) in 1994. North America is formally institutionalized in the form of a Free Trade Area (FTA), but its level of institutionalization is shallow or at most modest compared to that of Europe. On the other hand, East Asia 4 has no shared binding legal mechanisms and is still informally institutionalized. Although the Association of Southeast Asian Nations (ASEAN) was established in 1967, ASEAN is quite small in terms of economic size in comparison with EU and NAFTA and it is a small sub-regional economic organization in which major regional powers in East Asia such as Japan and China are not included. The Asia-Pacific Economic Cooperation (APEC) was also established in 1989. Yet it has no binding legal force and moreover it is better viewed as “a trans-regional rather than a regional body” (Ravenhill 2000, 329) because its member countries are located across several regions such as East Asia, North America, South America, and Oceania. In the aftermath of the Asian Financial Crisis in the late 1990s, recently ASEAN Plus Three (APT: ASEAN + China, Japan, and South Korea) has emerged for policy coordination and cooperation among East Asian countries. While APT had some success in advancing economic and financial cooperation in the region, APT is not formally institutionalized and it still remains largely a consultative body.

5 It is therefore legitimate to ask why Europe is far more advanced in the level of economic institutionalization than other regions or why East Asia does not have a region- wide formal economic institution. To put it in more general terms, we can ask what factor plays the most important role in facilitating or impeding regional economic institutionalization and why there is wide variance in the degree of institutionalization across the three major regions.

2. Literature Review

Although there are many different definitions of international institutions, by and large, we can classify them into two categories. A broad definition of them is repeated patterns of state behaviors and their interactions, which are established sometimes to serve certain goals. Thus, according to Hedley Bull (1977, 71), the balance of power, international law, and diplomatic relations among states are classified as international institutions. A narrower definition is particular interstate arrangements that are designed to promote interstate cooperation in specific time and space. In other words, it is specific (formal or informal) interstate arrangements that “have unique life-histories, which depend on the decisions of particular individuals” (Keohane 1988, 383). The examples are international organizations and regimes or treaties such as UN, IMF, GATT, and Kyoto Protocol. This dissertation is interested in this narrower definition of international institutions, particularly with a regional focus (e.g., EU, NAFTA, APT, etc.). I view institutions as organized systems of formal or informal rules and institutionalization as a process of making and applying the rules that govern interactions among actors in a

6 specific social setting. Accordingly, regional economic institutionalization can be defined as a process of making and applying the formal or informal rules that govern economic (and social or political) activities and interactions across countries in a region. Among international relations (IR) theoretical perspectives, liberal approaches (neo-functionalism, liberal institutionalism, and liberal intergovernmentalism) have been dominant in explaining regional institutionalization or integration. Particularly, neo- functionalist accounts, which were advanced by Ernst Haas, were very influential in the 1950s and the 1960s. Neo-functionalism emphasizes the spillover effect, which is an incremental, but more or less linear transition from social, technical, and economic integration to political integration or institutionalization (Haas 1958). One of the weaknesses of this theory, however, lies in that its regional focus was limited mainly to (Western) Europe. For instance, the spillover effect does not fit well into other regions such as East Asia. In East Asia, in spite of increasing intraregional economic and social exchanges region-wide formal institutionalization has not been formed (Haggard 1997; Katzenstein 1997, 2005; Pempel 2005b). Moreover, European institutionalization itself has not been a smooth linear process toward a pre-determined end point as neo-functionalism sees and it has indeed showed stop-and-go or zigzag patterns (Wessels 1997). Another weakness of neo-functionalism is that it lacks micro- foundations to explain the purposeful actions of individual actors as it focuses mainly on the spillover and self-reinforcement (Moravcsik 1998, 15-16). Lastly, it focuses mainly on intra-regional processes and thereby neglects explaining the impact of extra-regional events or pressures on regional institutionalization.

7 Table 1-2. Intraregional Trade Flows in Three Major Regions, 1980-2005 (Percentage)

Region 1980 1985 1990 1995 2000 2005

East Asia 36.8 39.0 43.1 51.9 52.1 55.4 Europe 61.5 60.0 66.8 66.9 66.3 66.2 North America 33.8 38.7 37.9 43.1 48.8 46.1

Source: IMF Direction of Trade Statistics CD-ROM (June 2007). Note: East Asia includes Hong Kong and Taiwan as well as 13 APT members; Europe includes 25 EU members (except Bulgaria and Rumania that joined the EU in 2007).

Liberal institutionalists have also advanced their ideas on regional institutionalization. For example, Keohane and Hoffmann (1991), Keohane and Nye (1975), and Nau (1979) saw the European Community as an international institution established to address increasing interstate interdependence. In their view, states establish regional institutions as a response to growing economic interdependence and the necessity of policy coordination in the context of economic globalization. Especially when global institutions are absent or ineffective, according to their logic, regional institutions arise as a second-best option. This argument is supported in part by the logic of a collective action problem. According to Oye (1986), the more number of players exists, the likelier it is for them to defect and the more difficult it is to control them. The Multilateral Trade Negotiations (MTNs) are also plagued by high transaction costs. On

8 the other hand, regional economic arrangements include much fewer players than MTNs and are easier to negotiate. Moreover, regional economic arrangements are less uncertain in terms of the outcome of negotiations, that is, “the distribution of gains and losses” (Hoekman and Kostecki 1996, 214-215). I agree with liberal institutionalists that economic globalization has been a crucial background against which regionalism or regional institutionalization occurred in the post-WW II era. Growing economic interdependence in the context of economic globalization requires policy cooperation or coordination among states and like-minded states in a region can lower transaction costs, share information, and monitor free-riding or defection in their interactions by establishing a regional institution. In my view, however, the concept of growing economic interdependence is too vague to explain the formation of regional economic institutions. It may be true that establishing a regional economic institution is generally easier than creating or strengthening a global economic institution. But establishing a regional institution still requires a substantial amount of time, cost, and energy. In other words, establishing a regional institution itself is a collective action problem rather than a solution of it. 5 Despite potential benefits of creating a new regional institution, states may not be willing to initiate or participate in the creation of it because a substantial amount of time, cost, and energy are needed to establish it. As will be explored later on, states tend to start making serious efforts to invent a new regional institution only after they experience specific and severe external (and internal) pressures or shocks such as wars, financial crises, and serious region-wide economic downturns.

9 More importantly, as is the case with neo-functionalism, liberal institutionalism cannot explain appropriately why different institutional arrangements are produced across major regions, that is, why European countries have pursued deep formal institutionalization instead of shallow one whereas East Asian countries have not built a region-wide formal institution. This exhibits that (economic) interests and the necessity of policy coordination alone cannot explain divergent institutional outcomes across them. In spite of these weaknesses, liberal institutionalist accounts are more helpful than neo-functionalist ones in two ways. First, they bring in the impact of extra-regional developments (economic globalization) as well as intra-regional processes on regional institutionalization. Second, they assume and try to explain the purposeful and strategic actions of actors rather than emphasize impersonal processes. Yet their views on regional institutionalization are incomplete in the sense that they neglect explaining specific antecedent or catalytic conditions that activate increasing economic exchanges and interdependence among states in a region to develop into the initiation of regional institution-building. Moreover, the initiation of regional institution-building does not lead to the same or similar institutional arrangements across regions. There should be, therefore, more detailed explanations that include factors other than economic interests and functional policy needs to explain the varieties of regional economic institutionalization. Liberal intergovernmentalism (Moravcsik 1993, 1995, 1998) is another important theoretical approach to regional institutionalization in liberal traditions. Like liberal institutionalist accounts, it emphasizes growing economic interdependence and the necessity of economic policy cooperation as crucial backdrops against European

10 institutionalization. It argues that in the context of economic globalization and enhanced global competition, some domestic actors (e.g., internationally-oriented companies) put pressures on governments to pursue Regional Trade Agreements (RTAs) and basically the European Community was the product of interstate bargaining driven mainly by commercial interests. When there were conflicts in interstate negotiations, according to it, powerful countries resolved them by “credible threats to veto proposals, to withhold financial side-payments, and to form alternative alliances” (Moravcsik 1998, 3). In its view, European states also agreed to the pooling or delegation of sovereignty because they wanted to enhance interstate commitments and thereby to maximize benefits from it. Liberal intergovernmentalism is a more sophisticated version of liberal institutionalist accounts of regional institutionalization. It shares the basic assumption or argument with them that regional institutions are the products of the purposeful and strategic actions or interactions of actors (states) in the context of economic globalization and the necessity of policy coordination. Based upon this, it emphasizes, among others, two more factors in explaining regional institutionalization. First, it brings in the role of domestic actors in forming regional economic arrangements. Dominant economic producers are initiators of them, although it is the ruling political coalitions that make a final decision on them. Second, it focuses on detailed interstate bargaining processes and tries to explain the role of the asymmetrical power relations of states in their outcome. As explored, liberal intergovernmentalism is more refined and developed than both neo-functionalist and liberal institutionalist accounts in explaining regional institutionalization. Nevertheless, it still has several defects or weaknesses.

11 First, contrary to its argument, according to my inductive empirical research, key political figures or central decision makers, not domestic interest groups, in each region have initiated and led a regional project. In Europe, for example, in the 1950s the idea of United Europe or Community Europe was not a dominant one strongly supported by domestic interest groups. But key political leaders such as Robert Shuman, Jean Monnet, and Konrad Adenauer who shared the idea of a new United Europe took the initiative and led the regional project based upon their idea by mobilizing domestic groups and using their agenda-setting powers (Parsons 2002). In the early periods of European institutionalization, in fact, “secrecy and speed” were two main strategies employed by the founding fathers of United Europe (Willis 1968, 83-84). Second, pure commercial or economic interests alone cannot explain the deep institutionalization of Europe very well. As will be examined in the main analysis, lots of empirical evidence (e.g., policy documents and memoirs) show that political leaders who initiated and led the European project were driven by a strong political motive: the establishment of a new Federal Europe. They viewed deep economic institutionalization among European countries as a stepping stone toward political integration and finally political harmony and peace among them (Monnet 1962, 1978). This political motive was shaped and strengthened in part by the devastating effects of two World Wars on the European continent. This implies that the nature and severity of external pressures or shocks, which tend to set regional institutionalization in motion, and its path-dependent effect should be carefully examined. Third, in relation to the pooling or delegation of sovereignty in European institutionalization, liberal intergovernmentalism tends to overlook two points: (1)

12 Although it focuses on the role of national governments in the process of international bargaining, it misses the fact that existing (supranational) institutional rules have played a crucial role in major decisions in the bargaining by redefining or changing national interests (Garret and Tsebelis 1996; Sandholtz 1993); (2) It downplays the role of Eurocrats (bureaucrats who work in supranational institutions such as the European Commission and the European Court of Justice). Although Eurocrats have their own nationalities, they have strongly supported the idea of One Europe (supra-nationalism) and played a critical role in the deepening of European institutionalization (Burley and Mattli 1993; Drake 2000). Therefore, approaches focusing only on intergovernmental interactions and negotiations cannot explain the deepening of European institutionalization appropriately. Historical and institutional contexts against which intergovernmental interactions occur should be closely examined and the role of actors other than national governments (e.g., supranational institutions in the case of Europe) should be taken into account. Lastly, like other liberal variants such as neo-functionalism and liberal institutionalism, liberal intergovernmentalism cannot provide us with a convincing explanation of why variant institutional arrangements come about across major regions. Moravcsik (1998, 2, 4-5), a mastermind of liberal intergovernmentalism, makes clear that although he focuses on the European case, his theory purports to explain regional integration or institutionalization in general from the standpoint of general studies of IR, particularly international cooperation. But his theory does not explain why three major regions (Europe, North America, and East Asia) come to have different institutional arrangements in the face of the same or similar structural environment (growing

13 economic interdependence) and with the same or similar motives (interests of dominant economic producers or macroeconomic considerations of political leaders). Another major theoretical perspective in the discipline of IR, realism also does not give us a compelling and consistent explanation of why states establish regional institutions and why there are different institutional outcomes across major regions. In particular, neo-realism, which is an offspring of realism, is generally skeptical about the endurance of international institutions and their impact on international cooperation. Neo- realism stresses that while liberal perspectives focus mainly on absolute gains in interstate interactions, relative gains are indeed more important because “the fundamental goal of states in any relationship is to prevent others from achieving advances in their relative capabilities” (Grieco 1993, 127, emphasis is in original; Waltz 1979). Therefore, neo-realists see that it is much more difficult for states to create international institutions than liberal approaches argue and that international institutions do not tend to endure mainly because of distributional conflicts among states, particularly major powers (Mearsheimer 1994/95). Basically, neo-realists see international institutions as being epiphenomenal in world politics and they are skeptical about the idea that interstate cooperation can be achieved in a truly significant and durable way by establishing international institutions. Grieco (1997, 176) also maintains that regional institutionalization will be retarded or impeded when “less powerful countries in a region have experienced or are experiencing a significant deterioration in their relative capabilities” because of their concern about further deterioration that can be produced by regional institutionalization. This argument, however, does not explain well the situation of East Asia. In contrast to

14 Grieco’s view, weaker states such as the members of ASEAN have sought stronger institutions and it is just after the Asian Financial Crisis in 1997/8 that China and Japan began to seek strong institutionalization (Bowles 2002; Moore 2004; Webber 2001). It is better viewed that sometimes weaker states support the establishment of a regional institution in order to limit the influence of a regional power or “in the hope of receiving special rewards” (Hurrell 1995, 50-52). 6

It is also worth pointing out that contrary to neo-realism’s predictions, different patterns of interstate interactions have emerged since the end of WW II across major regions. Neo-realism emphasizes that the enduring anarchic structure of the international system produces similar patterns of interstate interactions: fear, distrust, insecurity, and wars among states. In neo-realism’s view, only balance of power, which is based on checks and counterchecks among major powers, can soften the worst consequences of the anarchy of the international system. As will be examined in this dissertation, however, different regional structures and contexts have developed in the three major regions and they have influenced the development of different patterns of interstate relations across them. Today the pattern of interstate relations in Europe can be characterized as Friendship, the pattern in North America as Affinity, and the pattern in East Asia as the mixture of or oscillation between Rivalry and Affinity (Figure 1-1). In particular, the deepening (and widening) of European institutionalization has been a theoretical black hole of realist accounts. They have some relevance in explaining an East Asian case because leadership competition in the region between China and Japan has been one of the stumbling blocs against the formation of formal economic institutionalization in East Asia. But realist perspectives cannot explain appropriately

15 why two regional powers in Europe, France and Germany, have closely cooperated in establishing a regional economic scheme rather than engaged in checks and counterchecks. A hard core realist, Mearsheimer (1990) argued that it would be much difficult for European states to cooperate in the post-Cold War era because of the absence of the communist threat and the support of the US. But contrary to his argument, European states have continuously deepened and expanded institutionalization in the post-Cold War period and neo-realism has not been very convincing at least in explaining the institutional thickness of Europe. Thus, Grieco (1995) admits that states sometimes turn to international institutions, and anarchy is not the dominant structural nature of interstate politics at least in Europe. In short, realism cannot provide us with a convincing and consistent explanation of why different patterns of interstate interactions come about and why different institutional arrangements emerge across major regions.

The Patterns of Interstate Relations in a Region

Animosity Rivalry Indifference Affinity Friendship Unity

← Egoistic Identity Collective Identity → (Nationalism) (Supra-nationalism)

Figure 1-1. The Patterns of Interstate Relations in a Region Note: This is a revised version of Cronin’s Measurement of Identity (1999, 17, Figure 1).

16 3. The Argument and Research Strategy

This study is intended to demonstrate that rational-functionalist perspectives, upon which liberal and realist accounts are based, cannot explain very well different institutional arrangements across the three major economic regions. Rational- functionalist approaches tend to focus on very narrow time frames and neglect the path– dependent nature of institutional creation and development. They also assume rational actors who pursue more or less homogeneous interests (actors’ interests are naturally given) and limit the role of the ideas of social actors. Every social actor behaves in the context of social structures and social structures are the products of historical interactions. My inductive empirical research then indicates that different regional structures influenced interstate interactions in regions differently. It also shows that external pressures or shocks on regions created new regional structures. And the nature of the external pressures or shocks in conjunction with that of previous historical legacies influenced institutional outcomes in the three regions. To be sure, social structures can be changed by the cumulative actions of agents. But once structured they tend to endure and function to constrain or allow certain behaviors of actors. I am not however arguing for structural determinism. Although social structures exert a considerable influence on producing certain behaviors of actors typically by narrowing the range of their behavioral choices, they do not determine their behaviors all the time. That is why the same or similar structural pressures at times do not produce the same policy choices. For example, when there was a region-wide financial crisis in 1997/98 in East Asia, South Korea adopted IMF-led neoliberal economic policies

Full document contains 193 pages
Abstract: This study examines why different levels of economic institutional arrangements have been formed across three major economic regions: Europe, North America, and East Asia. We can identify three similarities in regional economic institutionalization across the three regions: (1) External pressures and challenges such as wars, financial crises, and severe region-wide economic downturns served as catalytic events for starting negotiations for a regional economic project; (2) Constructing a regional institution was a counterbalancing action vis-à-vis other major powers or regions; (3) Economic interests along with policy needs led to an interstate consensus on building a regional economic institution. In spite of these similarities, widely different institutional forms were produced across the three regions. My research illustrates that although power relations and economic interests have been at work, the policy ideas of key political actors who participated in major decisions on regional projects were the major determinants of divergent institutional arrangements across the three regions. In short, an idea-based approach better explains the varieties of regional economic institutionalization than power-based and interest-based ones, which are grounded in rational-functionalist logic.