95) accused APEC of being ‘four adjectivesin search of a noun’. This criticism was unfair because APEC members hadagreed to form a ‘community’. They were also clear on their definition of acommunity. It was neither intended to be a community of quasi-federalarrangement like the EU, nor was it to establish a large organization. Also, forthe foreseeable future it was not to be a common market or a customs union.It was instead decided that the APEC forum would promote trade andinvestment through a mix of policies that deal with trade liberalization, tradefacilitation and economic cooperation. Trade facilitation included initiatives instreamlining standards, improving customs procedures, coordinatingcompetition policies, and dispute mediation. Economic cooperation includeddevelopment assistance and cooperation on projects in human resources,infrastructure, energy, and the environment. Trade facilitation related researchwork done under the aegis of APEC is widely considered pioneering andrespectable, including by the WTO (Moore, 2000).APEC has gradually progressed ahead of its initial objectives, organizedbetter and got structured, starting with areas where members were in
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agreement. A significant time point for APEC was 1993, when the US hostedthe first Economic Leaders’ Meeting in Seattle and proposed that APECshould aim at creating an Asia-Pacific economic community, something on thelines of an Asia-Pacific EU. Since then, APEC has made meaningful progressin trade liberalization and facilitation. In 1994, during the sixth ministerial andleaders’ meeting, the ambitious Bogor (Indonesia) declaration was adopted bymembers, with specified targets for trade liberalization in the region. The 18participating leaders declared their intention of turning the APEC forum intoa zone of free trade and investment. The targets included trade liberalizationby 2010 for the five industrial economies and by 2020 by the rest of the APECmembers. The guidelines for implementing the Bogor plan were embodied inthe Osaka Action Agenda adopted in 1995, during the seventh ministerial andleaders’ meeting. They were further refined in 1996 at the eighth ministerialand leaders’ meeting during the formulation of the Manila Action Plan(Yamazawa, 1998; Yamazawa, 2000).The Bogor commitment presented both risks and opportunities. Theprincipal benefit could be in achieving improved market access that goesbeyond that feasible under the WTO regulations. The size of APEC hasimportant political consequences. The GATT or the WTO never laid down anentire schedule to achieve global free trade at a single moment. Whenmembers of APEC committed themselves to free trade as a long-term goal,they are likely to concentrate on making progress toward free trade in smallsteps. This would create momentum towards reduction in trade barriers,beginning with sectors having the least political resistance. This in turn couldpush the global trading system towards free trade. Besides, after the creationof NAFTA, many Asian economies were concerned about being shut out ofthe large NAFTA market, but since both Canada and Mexico are part ofAPEC, an APEC-wide free trade area would not let that happen. Likewise,some Asian economies were apprehensive that the US might lose interest inthe Asia-Pacific region, but again the APEC initiatives would help keep theUS involved in the region. As opposed to these plausible benefits, the risk layin promising too much and in the process losing credibility (Lawrence, 1996).There are two noteworthy features of APEC. Unlike other free tradeagreements, the achievement of Bogor targets has so far been based on (1)individual or national action plans, rather than on rigid target application to allmember states, and (2) concessions in terms of lowering of trade and non-tradebarriers have been extended to all the non-member trading partners. This isbased on the principle of open regionalism, noted above.41 This strategyruns in contrast to the closed regionalism of the 1950s and the 1960s.Misperceptions exist regarding the term ‘open regionalism’ because fewattempts have been made to define the term systematically. Some economistsfound it an oxymoron. The argument went as follows: if an arrangement is
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open, how can it be confined to a region.Two noteworthy attempts were made to define open regionalism: one by theEminent Persons Group (APEC, 1994) and the other by the Council ofEconomic Advisors (CEA) to the US President in 1995. The two definitionsare similar. The CEA definition goes as follows:Open regionalism refers to plurilateral agreements that are non-exclusive and opento new members to join. It requires first that plurilateral initiatives be fullyconsistent with Article XXIV of the GATT, which prohibits an increase in averageexternal barriers. Beyond that, it requires that plurilateral agreements not constrainmembers from pursuing additional liberalization either with non-members on areciprocal basis or unilaterally. Because member countries are able to choose theirexternal tariffs unilaterally, open agreements are less likely to develop intocompeting bargaining blocs. Finally, open regionalism implies that plurilateralagreements both allow and encourage non-members to join.42
APEC formally espoused open regionalism at its Osaka meeting in 1995 andthe Osaka Action Agenda was premised on the voluntary nature of the APECprocess, an essential corollary to the idea of open regionalism (APEC, 1995a).APEC took the stand that liberalization can only be achieved throughvoluntary actions of individual members. As the economic development levelsof the members were diverse, it was believed that having one set of rules forall members would not be effective. This thinking is in direct opposition to thestand taken by the WTO, which is wedded to the principle of ‘singleundertaking’ and binding of tariffs.43Thus viewed, one of the most important criteria of open regionalism is thefreedom available to member countries to liberalize further unilaterally or withnon-members on a reciprocal basis. It should be noted that in a customs union,individual members are not permitted to lower their tariffs. Common externaltariff of a customs union cannot be lowered unless all members agree toit. Under open regionalism, policy commitments are voluntary and are notlegally binding. When adopted, this strategy of voluntary liberalization wasconsidered without precedent. Its comprehensive coverage requires not onlythe reduction of tariffs and NTBs and elimination of barriers on trade inservices, but also harmonization of rules and standards and other facilitationmeasures. The last named ones are not attempted until a country group isattempting to form an economic union. During the APEC meeting in Manila,all the 18 members announced their individual action plans (IAPs) andlaunched into implementation of IAPs in January 1997. These features ofAPEC are viewed by some scholars as positive and likely to lead, albeit withsome modifications, to significant progress towards the Bogor targets (Petri,1997). However, others disagree and view these features as impediments toserious liberalization and negotiations. The earlier apprehension regarding theAPEC forum persists in some quarters and some analysts still believed that
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with such characteristics APEC might well be reduced to little more than a‘chat forum’ (Flamm and Lincoln, 1998).As the immediate agenda of APEC includes trade liberalization, tradefacilitation and economic cooperation, monetary and macroeconomiccooperation and development and technical cooperation projects werelaunched under the sponsorship of APEC. Many of these projects and policymeasures came from the agenda for deeper integration and could beimplemented in a shorter timescale than the establishment of a formal RIA.Thus, APEC could be more successful in achieving deeper integration in someareas than in achieving shallow integration. Several of these issues werepromoted with great enthusiasm by the Pacific Business Forum (PBF), whichwas formed after the 1993 summit in Seattle. The PBF includes businessrepresentatives from throughout the APEC region. The business leaders alsopresented a vision document that inter alia included calls for rapidliberalization of trade, an investment code for the APEC region, facilitation ofcustoms procedures, the establishment of a business-person visa, andestablishment of a small and medium enterprise foundation.If the members of APEC go beyond tariffs and NTBs dismantling andconsider agreements on domestic practices that reinforce market forces,trade with and entry of non-members would become easier, which in turnwould have trade creation rather than trade diversion effects. For instance,harmonized regulations, more efficient customs procedures, or increasedregulatory transparency would automatically help both insiders and outsidersin the APEC forum. This would also impart new meaning to open regionalism.In many Asian economies interest in liberalization and deregulation hasgrown. Some countries might find it easier to undertake these measures if theywere part of a regional agreement.APEC declarations and statements recognized the superiority of the globaltrading system, led by the WTO, and emphasized that regional tradeliberalization should be implemented within the framework of the WTO. Afterthe conclusion of the Uruguay Round, an APEC ministerial declarationrecognized the primacy of the WTO and the need to strengthen the multilateraltrading system (APEC, 1995b). After 1996, APEC changed its stance andcalled for cooperation on trade liberalization at the regional and multilaterallevels. At this stage, APEC appeared more inclined towards its regionalidentity and was even eager to emphasize its differences from the WTO. In theVancouver declaration, ministers noted that ‘regional and multilateral tradeand investment initiatives complement and support each other’ (APEC, 1997).The gravity model was run for APEC trade flows for APEC members until1992 (Frankel and Wei, 1997). Results reveal that of all the possible implicittrade blocs in the Asia-Pacific region the one that shows the strongest intraregional bias is the APEC group that includes the US as its member. This
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regression exercise found that two APEC members trade 200 percent morethan two otherwise identical economies. Controlling for an APEC effect leftthe coefficient on the East Asia bloc greatly reduced; it became marginallysignificant at the 10 percent level. This suggested that East and SoutheastAsian economies, although they trade a lot among themselves, did not tradesubstantially more than other APEC countries. Even after controlling for anAPEC effect, there was a pan-Asia bloc effect that exhibited a strong inwardbias.Of late, regionalization moves through APEC have been losing theirmomentum and APEC has become near-moribund, if not an ‘ailing regionalorganization’. One of the concerns at the 2000 Summit of APEC leaders44 wasbacksliding on agreements made during earlier APEC meetings. As the APECagreement on achieving free trade and investment by 2010 and 2020 was nonbinding and voluntary, this agenda fizzled, faltered and completely collapsedin the wake of the Asian crisis. The IAPs were facing serious problems. In theabsence of credible advances towards the target of free trade and investment,some APEC members are turning towards sub-regional arrangements to reachthese goals (discussed below). In an assessment of three key areas carried outin 2000, the private sector APEC Business Advisory Council found that theIAPs in many cases contained incomplete information about how membersintend to fulfill their commitments.Culpability for APEC’s stagnation rests with the two largest economies,Japan and the US. They have shown little leadership, so desperately needed byAPEC. The US policy makers allowed global liberalization to stall as they lostcontrol of domestic policy by pandering to special interests. Japan blockedattempts to pursue a sectoral approach to liberalization within APEC (Wain,2000). Partly out of frustration with APEC, members were increasinglypursuing alternative institutional arrangements to achieve their priorityeconomic objective. They took the form of sub-regional trade and financialpacts, discussed at length below. These initiatives primarily took place withinEast Asia and the Pacific but included some trans-Pacific members ofAPEC as well. An immediate scrutiny of the progress and achievementsof the organization is warranted to ensure that the proliferating subregional arrangements do not eventually serve to fragment the APECinitiative.7.4 The Indian Ocean Rim and SAPTAThe Indian Ocean rim or region (IOR) is a large geographical area of the globecomprising sub-regions like Southeast Asia, the South Asian sub-continent,West Asia, North and East Africa, South Africa, and Indian Ocean islandeconomies. The total number of IOR economies adds up to 47 littoral and
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land-locked countries. A large majority of these economies are not only smallin terms of GDP but are also small traders. There are comparatively largeeconomies in this group, like India, but they have a history of adopting aninward-looking strategy, and not giving it up until quite late in the day, andthen not abandoning it completely. Economic activity in many of thesecountries was dominated by public sector activity for a long time. FDI wastraditionally considered irrelevant and by using a high tariff wall, governmentlicenses and various NTB mechanisms, trade was discouraged. This wasone of the many reasons why their real long-term growth rates weredisappointingly low and they fell behind in accumulating capital andtechnological know-how, which inter alia led to a high incremental capitaloutput ratio in their industrial sector, developed a high-cost industrial structureand accumulated large foreign debt.The generalization holds that the IOR economies were not particularlyimpressed by the Washington consensus. Although a country like India wasable to achieve something close to economic self-sufficiency, it was at the costof a low long-term growth rate and a high level of absolute poverty. AlthoughIndia is a part of the IOR economies, it failed to learn from the dynamiceconomies in the Eastern part of the IOR. Its growth potential was underachieved by a wide margin because of its autarkic policies. Although SouthAfrica could have taken the East Asian route to success, apartheid and theperiods of trade and investment embargoes forced it into a policy regime ofself-dependence.The quarter century between 1960 and 1985 were neither conducive tobrisk GDP growth nor establishment of economic linkages in the IOR. Aquantum jump was visible in the policy regime after the launch of the UruguayRound in 1986. Some of these countries slowly began to unilaterally liberalizetheir economies, and started turning their policy regimes towards outwardorientation. Trade, transfer of technology and labor mobility among the IOReconomies began. In the 1990s, many IOR countries made some discernibleprogress towards trade liberalization as well as reduction of tariff, NTBs andexcessive government interference in the economy. Some of the commonstrands in policy changes included macroeconomic stability through fiscal andmonetary policies, currency depreciations to ensure realistic exchange rates,attempts to create an investor-friendly macroeconomic environment, removalof exchange rate controls to gain outward-orientation, and improvingefficiency in resource allocation through privatization and deregulation ofprices. Although this transformation was not easy, movement of policyregimes in the IOR towards liberalization provided some impetus to theexpansion of trade, including intra-regional trade. This process was slow tobegin with and needed to stay the course. Whatever policy transformation tookplace in the IOR economies was more institution-driven than market-driven.
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With the ongoing process of economic reforms in major IOR economies likeIndia and South Africa, the market forces are likely to become more effectivein the future, that is, if these economies stay the course. If policy liberalizationand market forces coalesce, there is a potential for the formation of an IndianOcean Rim Grouping (IORG) in the future.The South Asian Association for Regional Cooperation (SAARC) is a subset of IORG. It was formed in 1985 as a political consultation entity. Itsmembership comprised seven south Asian nations, namely, Bangladesh,Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. A good deal ofstrategic rivalry exists between these seven nations. Any economic dimensionof the organization was an afterthought. In April 1993, members of theSAARC concluded a trade agreement, which did not become operational untilDecember 1995. The initiative to form a preferential trade area (PTA) wastaken by Sri Lanka. They have cautiously formed what is called the SAARCPreferential Trade Area (SAPTA). It is the first stage of a regional integrativearrangement (see Chapter 1, section 6). So far this PTA has not made a greatdeal of progress. Forming SAPTA did not lead to an increase in intra-regionaltrade. For some years during the late 1990s, the recorded trade even declinedin absolute terms. Interestingly, a great deal of trade between these sevenSouth Asian countries is unofficial and unrecorded, suggesting possibilities offorming a successful RIA. A large amount of unrecorded trade between theseven members of SAPTA is a unique characteristic, not to be found in anyother RIA. Two of the larger members of SAPTA, India and Pakistan, havehad not-so-cordial political and economic relations, which limits thepossibility of intra-trade expansion.Results of gravity model show SAPTA so far is a non-block (Frankel, 1997;Frankel and Wei, 1997). Estimates show that recorded trade between India andPakistan is 70 percent lower than two otherwise identical economies. From thesub-regional economic perspective this conclusion is a bit ironic becauseseveral studies have established that SAARC countries can benefitenormously by cooperating economically and promoting regional trade(Srinivasan and Canonero, 1993, 1995). These studies used a more stylizedmodel, although along the lines of the gravity model. Their equation wasidentical to a gravity equation, but they broke it down by commodity. Theyadded explicit measures of tariffs to the gravity equation, and used thosecoefficients to infer the effect of various changes in trading arrangements. Forall countries in the region, the most important effects came in the textile fiberssector (particularly textile yarn and clothing) and in manufactures. Theyinferred that if SAARC becomes an active RIA, it would substantially expandtrade for the smaller countries of the sub-region. After regional integration,Bangladesh’s estimated new trade within the sub-region would be 21 percentof GNP, more than double the level of total trade for that period. Nepal’s new
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trade was estimated to be even larger, 56 percent of GNP, almost three timesthe erstwhile level. For these countries, the benefits of regional integration arelikely to be large, partly because their base levels of trade were small. For thetwo large sub-regional economies, India and Pakistan, SAARC would have asmall trade-creating effect.7.5 ASEAN-Plus-ThreeThe newest idea in regional integration in Asia is the ASEAN-Plus-Three(APT) grouping. A consensus regarding the creation of the APT betweenASEAN and its three north Asian partners (China, Korea and Japan) wasreached in 1996, during the Asia Europe Meeting (ASEM). The de factogrouping that emerged was further cemented by the regional initiatives tocombat the Asian economic crisis during the 1997 Kuala Lumpur ASEANsummit.The Asian crisis lent urgency to the APT grouping. Asian governmentswere disappointed by the solutions applied to resolve the crisis by theInternational Monetary Fund (IMF) and western governments. Regionalgovernments, therefore, turned to creating homegrown solutions to theireconomic and financial problems that might arise in the future. Failure toreform the global financial architecture gave an impetus to greatercollaboration in the monetary and economic areas among the APT countries(FT, 2000). The APT group held its first summit in 1998 and created an ‘EastAsia Vision Group’ (EAVG) to guide its work. Since then, APT leaders havemet annually and their commitment to regionalism increased academically,bureaucratically and culturally. Institutionalization increased the pace of APTactivities. For instance, meetings of various APT fora like the e-APT WorkingGroup, the APT Young Leaders, and the APT Labor Ministers, werecontinuously organized. Since 1998, the APT has also begun holding regularmeetings of its finance ministers.The EAVG comprised eminent scholars from the member countries andundertook research on the APT and regional integration. Plans for an APTSecretariat in Kuala Lumpur were being discussed in 2002. There were threeprincipal reasons behind the rapid progress in the APT activities. The first wasa spurt in global regionalism during the 1990s, and second was the keen desireto avert future occurrences of a 1997-like contagion in the region. Risk of acontagion is a serious downside of globalization. It has made closer economiccooperation and integration imperative among the APT economies. The thirdreason was China’s rise as a regional economic power of significance. China’strade with the members of ASEAN has increased rapidly since 1977 when itstood at $925 million, to $94 billion in 2002. For the ASEAN economies,China is both a large market and a strong competitor in third-country markets.
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In 1999, EAVG published a study on the East Asia Economic Co-operationSystem, which focused on nurturing and furthering APT integration. TheEAVG report contained a proposal to further liberalize regional trade andcreate an East Asia Free Trade Area (EAFTA) as well as liberalization of tradewell ahead of the Bogor target set by the APEC forum. While emphasizingthat the regional integration arrangement should be consistent with WTOarrangements so as to reinforce the multilateral trading system, the EAVGreport recommended the establishment of preferential treatment for theleast-developed countries (LDCs) in the region. It also recommended thatthe Framework Agreement on an ASEAN Investment Area be expanded toinclude all of East Asia.Several integration plans between the APT economies have also been underdiscussion and negotiations. For instance, a free trade agreement involvingASEAN and South Korea has been considered, and this would revitalize tradeand increase investment and competitiveness of the APT economies. TheASEAN Free Trade Area has some way to go before becoming an effectivemeans of strengthening the region’s competitive economic position on theglobal market. Also, intra-ASEAN trade volume is not high relative toASEAN’s total global trade volume (section 7.2). It is believed by the APTmember countries that AFTA can be an effective regional trading arrangementwhen linked with Northeast Asia through bilateral arrangements (i.e.,ASEAN–China, ASEAN–Japan and ASEAN–Korea), or within the context ofa comprehensive APT. The next logical stage of regional integration couldwell be ASEAN forming a linkage with Australia and New Zealand.Even before the formal launching of APT, this group of 13 Asian economieshas become the most active RIA outside Europe, and has more sophisticatedmachinery than NAFTA (The Economist, 2000b). The reverse of the coin isthat the grouping is still at an early stage and has not integrated with the threenew northern partners. The APT is proceeding more rapidly on financial issuesthan on trade. The Asian crisis of 1997–98 is responsible for this emphasis.Members of this group, in the Chang Mai Declaration (1999), announced aregion-wide system of currency swaps to help them deal with any future Asiancrises. This facility has been created for the APT economies, although noformal institution has been created. This plan is similar to the one drawn upby the Group of Ten (G-10) industrial nations in the early 1960s, when theyfaced the first global monetary hiccups of the post-war era. The BrettonWoods institutions expressed strong support for the Chiang Mai initiativewhich entailed expanded financial cooperation. They considered it acomplement to the IMF’s own financial assistance for the Asian economies(Kohler, 2001).Sub-regional financial structures are also evolving. ASEAN has created asurveillance mechanism to try to anticipate and head off any future crises,
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using sophisticated early-warning indicators. The northeast Asian economiesagreed to jointly keeping an eye on short-term capital movements in their owneconomies and in the vicinity. There has been much talk of common currencybaskets and joint intervention arrangements to replace both the discrediteddollar pegs of the pre-Asian crisis era and the costly free floats imposed by it.Japan has actively promoted the establishment of a network of currency swapsto protect Asian economies against speculative attacks, which plagued theAsian economies during the crisis period (FT, 2000).Although the Japanese proposal of an Asian Monetary Fund (AMF) wasrejected out of hand in 1998, it began to re-evolve in the later half of 2000.China was initially critical of the original AMF proposal, but changed itsstance and strongly supported the initiative in 2000. Hong Kong SAR and thePhilippines have proposed an Asian currency unit (acu), patterned along thelines of the euro. These were far-reaching concepts, which would take years tomaterialize. However, a couple of years ago they would have not even beenseriously considered by any of the group members. The APT is emerging as acredible economic initiative. Whether it would be a force to reckon with willonly be evident in the medium-term.
8. ‘NEW AGE’ BILATERAL INITIATIVESDuring 2000, there was a new fervor for bilateral and plurilateral free tradeagreements. As tariffs have declined worldwide, the focus of FTAs shiftedtoward other issues, including rules governing FDI, e-commerce regulations,trade in services, as well as trade facilitation issues like harmonization oftechnical standards, sanitary and phytosanitary regulations, technical barriersto trade and streamlining of customs procedures.Australia, Canada, Chile, Japan, South Korea, Mexico, New Zealand,Singapore and the US rushed to sew up a web of bilateral free trade deals.After the debacle of the WTO Ministerial Conference in Seattle in 1999,popularity of bilateral FTAs suddenly increased. At the end of 2003, over 40bilateral trade agreements were either formally proposed, or being negotiatedor were signed. Interest in the bilateral agreements was due to the concernregarding the spread of regionalism in Europe and Latin America. Economiesin other parts of the globe apprehended that their trade would be adverselyaffected if they failed to negotiate parallel agreements. In some Asianeconomies, particularly in Korea and Japan, pressure for negotiating bilateralagreements came from the private sector. Keidanren (the Japanese Federationof Economic and Business Organizations) noted that while European and USexported to Mexico at zero tariff rates, Japanese exports faced an average dutyof 16 percent. The timing of such a large number of bilateral agreements in
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Asia-Pacific can be explained by the slow progress and disappointingoutcomes of trade and investment liberalization under the aegis of both AFTAand APEC. In addition, members of AFTA wanted to exclude several crucialareas of trade from the liberalization program (Ravenhill, 2003; WTO, 2003a).Historically, Australia, Japan and New Zealand were strong supporters ofmultilateralism and the MFN principle. However, that was in the past and nowthey do not seem to have anything against RIAs or even bilateral tradeagreements. Japan relied completely on the multilateral system in the past,but it is also actively pursuing preferential trade agreements with Korea,Mexico and Singapore. Japan and Korea expected to use their bilateral tradeagreements later on as a bridge to other free trade constellations.The other two Asian economies, which traditionally relied on a multilateraltrading system and were negotiating preferential trade agreements, were NewZealand and Singapore. The two economies signed a bilateral accord forminga ‘Closer Economic Partnership’ or CEP on 14 November 2000.45 The twopartners have characterized the accord as a prototype for other bilateralagreements. The provisions of the CEP accord include free trade in goods,clear rules of origin, a ban on exports subsidies, an open and positive stanceon investment, free trade in services (which is to be phased in over ten years),harmonization of professional qualifications and technical standards andaccess to all government procurement in the other country. This is the newestparadigm in RIA and is called the ‘new age’ bilateral FTA. Going forward, thenew age FTAs also envision collaboration in intellectual property rights,education and training, media and broadcasting and tourism.In November 2000, Singapore and the US agreed to negotiate a free tradeagreement (de Jonquieres, 2000). Singapore also took the initiative inexploring the possibilities of new age bilateral trade deals with Canada andKorea. The CEP agreements, noted in the preceding paragraph, had ademonstration effect. Early in 2001, New Zealand was trying to negotiate CEPdeals with Chile and the US, and Australia was negotiating a similar deal withthe US. AFTA had also begun exploring a linkage with the ANZ-CER. Anortheast Asia free trade area was under study in 2002; when created it wouldlink China, Japan and Korea. If it did come about, it is likely to merge withAFTA, covering the whole of East and Southeast Asia. In January 2001, thePhilippines began discussing, but not negotiating, the possibilities of a CEPagreement with the US and Thailand with Korea.There are several reasons why the new age bilateral trade pacts and financialinitiatives have sprung to action at the outset of the twenty-first century. Thefirst and the most important factor is the Asian financial crisis, which mauledvirtually the entire region. The crisis-affected Asian economies realized thatthey received inadequate bilateral support and multilateral assistance. Asnoted earlier, a good deal of disappointment persisted among Asian policy
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makers on this count. Second, the debacle at Seattle and resistance to startingthe next WTO round of MTNs caused a great deal of concern to Asianeconomic policy makers. They grew anxious about their globalized economicsectors like telecommunications, banking and finance, informationtechnology, agriculture and national airlines. They hoped that narrow bilateraltrade pacts might supplement multilateral arrangements. Expectationregarding bilateral trade pacts correcting regional ills may not be correct,because it would take much more than bilateral agreements to resolve theseproblems (Bhatia, 2000). Third, the inspiration provided by Europeanintegration and the Single European Market was always one of the factors.Fourth, the regional political and economic leadership felt let down by thepoor quality of leadership provided by the US and the EU in the globaleconomic arena (Areddy, 2000; The Economist, 2000b). Fifth, impatiencewith the slow progress or virtual impasse in APEC and ASEAN was anothercogent motivation behind the rush into bilateral free trade agreements. Someof these perceptions may not be correct, but Asia seems to have decidedthat it does not want to be in thrall to Washington or the West. It is neitherrejecting the multilateral institutions, nor opting out of the international capitalmarkets. It would continue to participate in the globalization of trade andinvestment. However, it seems that Asian economies have planned to workwithin the global economic framework, but be a more independent third pillarof it.Not all the recent initiatives are likely to reach worthwhile fruition, but whatmatters is the changing mindset in Asia. Asian economies, in particular Japan,have become less