to be 70 percent less than two otherwise identicalcountries. Over all, the assertion of Krugman (1991b) that proximity promotestrade stands up. The gravity equation estimated convincingly that distance is avery important determinant of trade. South Asia has proved to be an exception,apparently because historical enmity reduced trade between India andPakistan.Thus, a good number of empirical studies, using the gravity model, are nowavailable. They point toward two broad conclusions. First, East and SoutheastAsian economies clearly show certain inward bias among themselves. Second,even after controlling for a special Asia effect, East and Southeast Asianeconomies en masse appear to trade more among themselves than one wouldexpect based on their economic and geographic characteristics. Adding theHong Kong SAR and Singapore dummies does not change the qualitativefeature of the picture.
7. FORMAL REGIONALISM IN ASIA-PACIFICNotwithstanding the high level of market-driven intra-trade, historically the
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Asia-Pacific economies did not display as much enthusiasm for RIA formationas those in Europe and Latin America. Even at the beginning of the twentyfirst century, formal regional trading arrangements are neither numerous norhave gone very far in Asia. The first wave of regionalism, of the 1960s, almostpassed the region by. The genesis of regionalism can be traced back to aproposal for a regional economic grouping to counter the creation of the EEC,as it began to unfold after the signing of the Treaty of Rome. Kiyoshi Kojima(1968) is credited with positing the concept of the first ever regionalorganization for Asia, which he named the Organization for Pacific Trade andDevelopment (OPTAD).34 Kojima also introduced the concept of a PacificFree Trade Area (PAFTA). Under the aegis of OPTAD, a series of annualconferences was organized on Asia-Pacific trade and developmental issues,beginning with the first in Tokyo in 1968. Under the general direction ofKojima this debating forum remained active.The Pacific Economic Co-operation Conference (PECC) was born inSeptember 1980 and was the expression of the next wave of regionalism. Itwas a product of the Canberra seminar on the Pacific Community. In 1992, thePECC membership consisted of Australia, Brunei Darussalam, Canada, Chile,China, Hong Kong SAR, Indonesia, Japan, Malaysia, Mexico, New Zealand,Peru, the Philippines, Russia, Singapore, Taiwan, Thailand, the US andthe Pacific island nations. OPTAD became an institutional member of thePECC. Both China and Taiwan were admitted to full participation of PECCin 1986, which became the new reality of Asia-Pacific regionalism in the1980s.Other than regional cooperation and integration, there are several areas inAsia where sub-regional cooperation began taking place. This new type oflocalized economic cooperation began to appear towards the end of the1980s. Autonomous sub-regional blocs began to develop. While there weredifferences, two common features of these regional groupings were theparticipation of two or more countries, and the inclusion of only parts ofcertain countries. The groupings were given various names but the term‘growth triangle’ gradually emerged as a popularly accepted generic term.These growth triangles were the outcome of a complex interplay of keyfactors, including massive flows of FDI, outward-oriented developmentstrategies, differences in factor costs and factor endowments, and the need foreach country to have an element of balanced spatial development.Although these groupings are still relatively new, given the likely continuedexistence of these key factors, growth triangles have probably established theirplace within the region. The following sub-regions are presently operational:(1) the Southern China Growth Triangle, which includes the Fujian provinceof China, Hong Kong SAR and Taiwan, (2) the Johor–Singapore–RiauGrowth Triangle, (3) the Tumen River Area in Northeast Asia, which
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comprises China, Japan, the two Koreas, and Eastern Russia, and (4) the EastAsian Growth Area, which comprises Brunei Darussalam, Indonesia,Malaysia and the Philippines. There are two other smaller growth triangles,namely: (1) the Indonesia, Malaysia, Singapore Growth Triangle and (2) theIndonesia, Malaysia and Thailand Growth Triangle.In their most basic form these growth triangles exploited complementaritiesbetween geographically contiguous areas of different Asian countries to gaina competitive edge in export promotion. To be effective, they required closecooperation between the private and public sectors of each of the countriesinvolved. As a rule of thumb, the private sector provides the capital forinvestment, and the public sector provides infrastructure development, fiscalincentives, and a favorable administrative framework. Interest in forminggrowth triangles was heightened during the 1990s by the success of thesouthern part of China (discussed in section 3.3), in achieving high rates ofgrowth through economic cooperation with neighboring economies.At the beginning of the twenty-first century, proclivity towards regionalismin Asia ostensibly began to strengthen. Led by Singapore, the politicalleadership in Asia grew increasingly inclined towards it. There were ferventcalls to take advantage of new opportunities and meet unprecedentedeconomic challenges. To this end, it was felt that Asian economies needed towork in a proactive manner towards regionalism (McNulty, 2001). As thelatest advances in information and communications technology were revolutionizing work, business, economies and lifestyle, it became more importantto regionally integrate Asian economies. In several high-technology sectorsincluding ICT, resources of a large geographical area can be integrated for thebenefit of the region. A large pool of talented Asian professionals propel theindustrial economies. By encouraging further regional integration in terms ofinvestment and trade, Asia can create synergy, which in turn would retain itstalented professionals.Although there are not many RIAs in the Asia-Pacific region, there is agood deal of intra-trade. As given in section 3.2, the 2001 value of intraregional trade was $722 billion, which was 48.2 percent of the total Asianmerchandise trade. The existing RIAs or RIA-like arrangements do show animpressive variety in the range of these agreements. In chronological order,they include Australia–New Zealand Closer Economic Relations (ANZ-CERor only CER) agreement, ASEAN Free Trade Area (AFTA), the APEC forum,and SAARC Preferential Trade Area (SAPTA).35 The history, motivation andobjectives of these RIAs vary widely. Of these, only CER and AFTA can betreated as integrated RIAs. Of the other RIAs or RIA-like arrangements, someare formal, others are not. Some are successful, others are there only in nameand merely work towards facilitating trade. Some are more than a decade old,while others are little more than a concept.
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7.1 Australia–New Zealand Closer Economic RelationsAustralia and New Zealand were known for their long-standing deep-rootedcommitment to protectionist policies. Until the 1970s, they had the highestaverage levels of protection for their import-competing manufacturingindustries in the OECD countries. Economists cited them as examples of slowgrowing countries with high levels of protection and an inability to adjust tochanges. In 1965, Australia and New Zealand agreed on the establishment ofa free trade area. This was the first formal RIA in the Asia-Pacific region.Technically a CER (which is the same as ANZ-CER) is a free trade area (FTA)and each country retains independence in its trade policies with the nonmembers.During the 1980s and 1990s, the two economies pursued sets of tradepolicies which shared many elements and represented a style of trade policythat is distinctive. The common elements included an accelerated unilateralreduction in barriers to trade with other nations, and a sharp movement awayfrom NTBs, particularly from quantative restrictions (QRs). The earlieragreement was superseded by the new 1983 CER agreement, which wasintended to reinforce the CER and accelerate its movement toward regionaltrade and investment liberalization. The provisions of the agreementswere substantially widened and deepened. However, the ‘negative list’ stillcovered some 40 percent of trans-Tasman trade in manufactured goods.All border restrictions were to be ended within twelve years. Tariffs wereto be phased out by 1988, performance-based export incentives by 1987,and QRs and tariff quotas by 1995. In reality, these targets were met byJuly 1990, some five years ahead of schedule. In addition, anti-dumpingmeasures (ADMs) between the trans-Tasman partners ceased from the samedate.A comprehensive review of the CER was undertaken in 1988, in which thetwo partner governments inter alia addressed the issue of domestic productionsubsidies. This issue had caused a great deal of acrimonious discussion in themid-1980s. In 1988, the two partners of the CER decided that industryassistance should be avoided where it would have a distortive impact overtrans-Tasman competition (BIE, 1995). Australia’s Export FacilitationScheme for passenger motor vehicles was originally excluded from thisarrangement, but the exclusion was later withdrawn. During the late 1980s,there was a change in the mindset of the policy makers. Both Australia andNew Zealand became fairly aggressive trade reformers. Building on theachievements of free trade in goods, the two governments raised their sightsto the more ambitious objective of creating a single trans-Tasman market. Animportant condition for the creation of a ‘single market’ is the removal ofadministrative and the so-called ‘behind-the-border’ impediments to trade and
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investment flows. The process of removing these impediments is called ‘tradefacilitation’, to distinguish it from the removal of traditional trade barriers,described as ‘liberalization’. For the purpose of trade facilitation, the CERemployed measures like liberalization and integration of purchasingprocedures, harmonization of standards and conformance procedures,harmonization of some aspects of business law, and streamlining andharmonization of customs procedures (BIE, 1995). Further facilitationmeasures continued to be introduced, with a notable addition being theagreement on food standards in 1996.A Protocol on Services was concluded in 1988, providing for MFN andnational treatment for services providers in both the countries, albeit withsome exceptions. The ‘negative’ list of services excluded from free trade waslimited. This approach was more transparent than the ‘positive’ list approachrecommended by the General Agreement on Trade in Services (GATS).However, there are some frictions remaining in the CER over liberalization ofsome services sectors and investment regulations in Australia. A review of thisagreement was carried out in 1992. It led to several modifications, includingthe commitment to harmonize business law and competition policy betweenthe two members of the CER.36With the passage of time, the CER went on expanding the scope ofits activities. Since 1992, it has enjoyed a smooth and uncontroversialprogress towards a single market because of the unilateral liberalizationand deregulation that has occurred in Australia and New Zealand. Thecommon system of government, law and customs and a shared language haveobviously been important. The CER agreement contains provisions on theapplication of countervailing measures, subsidies and governmentprocurement. Anti-dumping provisions do not apply to trade betweenAustralia and New Zealand. This is an important innovative step taken by theCER and has attracted international attention. Any ‘unfair trade’ claims aretreated according to national competition laws in the country where thecomplaint occurs. Disputes are settled by consultation. An important featureof this progress is that it was achieved with simple rules. There is noadministrative organization or secretariat to supervise the CER agreement.Lloyd (1997) described CER as the ‘most clean and most outwardly open ofall the RIAs approved under the GATT’. Lloyd also considers CER amongthe regional trading arrangements second only to the EU, particularly inits bringing down of trade barriers and introduction of trade facilitationmeasures.Another notable feature of the CER is that it has been achieved by strongunilateral movements towards free trade and deregulation in both the partnereconomies. It exemplifies ‘open regionalism’ because regional liberalizationin CER has progressed with liberalization vis-à-vis countries outside the CER.
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The other region, perhaps the only other, regional trading arrangement in theworld that achieved substantial regional liberalization along with substantialunilateral liberalization is ASEAN.As the CER is an RIA of an advanced variety, it needs to be judged bystandards of a highly developed regional arrangement like the EU or NAFTA.Intra-CER trade is a small share of each partner’s total trade. AlthoughAustralia is New Zealand’s largest trading partner, in 1990s its share of NewZealand’s exports ranged between 18 and 21 percent, with its share of NewZealand’s imports only slightly higher at 20 to 22 percent. The only aberrationwas 1996 when the share of New Zealand’s imports shot up to 24 percent. Asopposed to this, New Zealand’s share in Australia’s trade has remained evenlower. During the 1990s, New Zealand accounted for 4 to 5 percent ofAustralia’s imports and 5 to 7 percent of its exports (Scollay, 2000). Inaddition, the growth in the share of intra-CER trade of the two countries totaltrade has not been dramatic. The significance of intra-trade in CER risesmarkedly when trade in manufactured goods is taken into account.Manufactures dominate the intra-trade of Australia and New Zealand, whichis completely unlike their pattern of exports to the rest of the world. Anotherinteresting feature is that while Australia is a net importer from the rest of theworld as a whole in each of 13 major categories of manufactured goods, it isa net exporter to New Zealand in all but three of those categories (Scollay,2000).McMillan (1993) and Scollay (1994) inferred that significant reduction inexternal barriers against third countries have accompanied the elimination ofbarriers between the two partner economies of the CER. This is a welfareenhancing condition. It has been noted above that substantial unilateral tradeliberalization took place in Australia and New Zealand, while they eliminatedtrade barriers between each other. The efficiency improvements brought aboutin the manufacturing sector through unilateral trade liberalization helped toensure that the manufactured goods trade – stimulated by CER – would alsobe primarily welfare enhancing.Using the gravity model for the CER, Frankel (1997) reported it asbeing highly significant statistically. It had a slightly upward trend, reaching1.7 in 1970. Empirical tests show that the antipodean pair trades 5.5 timesas much as an otherwise similar pair of countries. The openness term showsthat trade by Australia and New Zealand with other partners is consistentlylow. However, the openness term has no discernible impact on the bloccoefficient. In the future, further rationalization in the trans-Tasmanmarketplace would not only integrate the two partner economies closer,it would help them in making the profound adjustments that would berequired by the APEC vision of free trade and investment in the Asia-Pacificregion.
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7.2 ASEAN Free Trade AreaThe second RIA in the Asia-Pacific region was related to the ASEANcountries. In August 1967, ASEAN was established between five SoutheastAsian economies, namely, Indonesia, Malaysia, the Philippines, Singaporeand Thailand. As the earlier regional initiatives among developing economieswere not known for their success, ASEAN restricted its scope to cooperationon strategic and political issues. Its objectives were to promote peace andstability. It needs to be emphasized that ASEAN was not born as a subregional economic organization. Brunei Darussalam joined ASEAN in 1984.The four members that joined later were Vietnam in 1995, Laos and Myanmarin 1998 and Cambodia in 1999, bringing the membership to 10 SoutheastAsian economies. Strengthening trade and economic linkages did not comeinto it until 1977, when the founding five members of ASEAN put into forcean Agreement on ASEAN Preferential Trading Arrangement (APTA).37 ThisAPTA granted 10 to 15 percent margins of preferences on 71 commodities andindustrial products. A stronger free trade proposal had fallen through duringthe APTA negotiations.The APTA was weak and inconsequential, as the most important sectorswere exempted from the system of preferences that the members weresupposed to grant to each other. The product-by-product nature ofnegotiations, non-genuine offers of preferences, high domestic contentrequirements, and the limited nature of preferences themselves rendered thePTA rather ineffective. It had little impact over trade between ASEANcountries. In an infamous example, Indonesia removed mutual trade barrierson the imports of snow shovels. Over the 1985–87 period, the ASEAN leadersagreed to expand the list of sectors covered by the APTA and also to increasethe margin of preferences. However, until the end of the 1980s the fraction ofgoods eligible for regional preferences was still only of the order of 3 percentof the total number of goods traded. Thus, ASEAN had little success on theeconomic integration front. Between 1967 and 1992, it remained more or lessa political organization.In January 1991, the ASEAN countries agreed to upgrade the APTA andestablish an ASEAN Free Trade Area. The proposal was made by Thailandand accepted by all the members a year later during the fourth ASEANSummit meeting in Singapore in January 1992. AFTA came into force in1992, which breathed a new lease of life into ASEAN. The original goal ofAFTA was to reduce tariff rates on intra-ASEAN trade to between zero and 5percent within 15 years beginning January 1993. The principal instrument foradopting this objective was the common effective preferential tariff (CEPT)plan.The CEPT plan divided goods into two categories: (1) the fast-track goods
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whose tariffs would be reduced to 0 to 5 percent within 7 to 10 yearsdepending upon whether the initial tariff was below or above 20 percent, and(2) the normal-track goods on which tariffs would be reduced more slowly andin two stages. Subsequently, during the 1993 and 1994 ASEAN summitmeetings the rate of planned tariff liberalization was accelerated and otherchanges were adopted, whereby 11000 tariff items – which included 20percent of total tariff lines – were to reduce tariffs by January 1994. Membersdecided that the fast-track tariff lines would be liberalized by 2000 andnormal-track tariff reductions would be achieved by the year 2003 instead of2008. Vietnam, which joined ASEAN in 1995 and AFTA in 1996, was granteda ten-year implementation period ending 2006. By 1999, AFTA had 10members.AFTA can indeed make a useful contribution to trade and investment in theregion. However, it became obvious that CEPT had serious limitations. First,it emphasized tariffs, which became less important relative to regulatory NTBsas impediments to trade in the ASEAN countries. Second, CEPT also focusedon merchandise trade, which had been declining in importance relative to tradein services and investment. Third, most analysts considered the CEPTtimetable to be slow. The justification given was that it would give businessenterprises time to adjust and restructure. Besides, the AFTA economies hadnot overcome all their miscellaneous disagreements. More important, theCEPT agenda still covered less than half of intra-ASEAN merchandise trade.Broadening CEPT to give a wider coverage of intra-ASEAN trade was vitallyimportant.The CEPT scheme was based on four lists: the inclusion list (IL), thetemporary exclusion list (TEL), the sensitive list (SL) and the generalexception list (GEL). These four lists were the instruments that were todetermine the pace and scope of liberalization of the trade regime of the tenmember economies. The trade products on which tariff reduction was to betaken up immediately were included in the first list, IL. By 2003, all theproducts on the IL were to have tariffs in the range of 0 to 5 percent. Theproducts on the TEL were not subject to tariff reduction initially, but all ofthem were to be moved to IL in 2000 in five equal installments beginning in1995. Import tariffs on these products were to be slashed to a 0 to 5 percentrange by 2003. The SL comprised unprocessed agricultural products, whichwere to be phased into IL between 2001 and 2003. Their tariffs were to beslashed to the 0 to 5 percent range by 2010. The last GEL was based on ArticleXX of the GATT-1994, therefore, items on this list were excluded from tariffreductions for reasons of national security, protection of public morals,protection of human, animal and plant life and health, and the protection ofarticles of artistic, historic and archaeological value.A noteworthy feature of the CEPT is that participating economies were
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required to trade concessions on a product-by-product basis. To be eligible forconcession under the CEPT, a trade item had to meet three conditions. First, ithad to be on the IL of both the importing and exporting economies. Second,the product in question needed a tariff of 20 percent or below. Third, it had tosatisfy the local content requirement of 40 percent. In addition, after the tariffconcessions were applied to a product, all the NTBs on that product had to beeliminated in five years.At the time of creation of ASEAN, most member economies had only justembarked on their industrialization programs and lacked confidence to lettheir tariff barriers and NTBs down. They now developed a great deal ofconfidence, thanks to rapid outward-oriented industrial development. Manymember economies have succeeded in learning about global trade regulationsand negotiations. By the early 2000s, five of the ten ASEAN economies(namely, Indonesia, Malaysia, the Philippines, Singapore and Thailand) hadacquired the status of emerging-market economies.38 Brunei Darussalam is anoil-rich kingdom.The members of AFTA have now become ambitious about regionalintegration and before notable progress in intra-trade expansion was made,they began considering harmonization of standards and policy integrationrelated issues. AFTA has also begun addressing trade facilitation issues. Tothat end, the ASEAN Consultative Committee on Standards and Quality wasestablished to work on harmonization of standards, testing and accreditation oflaboratories, conformity assessment, and technical information. AConsultative Forum on FDI met in 1993, and there were plans to holdmacroeconomic consultations. However, the trade facilitation agenda wasslow to get off the ground. To make things worse, it was overtaken by that ofthe APEC forum. Disagreements among members have persisted. During theOctober 2000 meeting of the ASEAN, Malaysia scuttled the timetable forlowering tariff barriers. There was a possibility of a chain reaction wherebyother members could decide to keep tariffs on favored local industries (AWSJ,2000). In 2001, the intra-AFTA exports were $90 billion and intra-AFTAimports were $70 billion.39The gravity model for AFTA provided evidence for the fact that theASEAN bloc shows highly significant openness (Frankel and Wei, 1997). Thedummy for the ASEAN was found to be extraordinarily large and statisticallysignificant. Interpreted literally, two ASEAN economies trade 600 percentmore than two otherwise identical economies. As Singapore plays an entrepôtrole, its exports and imports are larger than its GDP. Therefore, the extremeopenness of Singapore can be reflected in the intra-ASEAN bias. To examinethis, a Singapore dummy was added, which was found to have a positive andsignificant coefficient. The coefficient on the ASEAN dummy was reducedbut it still remained quantitatively large and statistically significant. Thus, one
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can infer that Singapore’s extreme openness did not explain all the inward biasamong the ASEAN countries and that – notwithstanding the plethora ofproblems and delays – it is likely that the ASEAN economies have a tendencyto expand their trade with each other.7.3 Asia Pacific Economic Co-operation ForumThe idea of creating a multilateral forum to enhance economic cooperationamong Asia and Pacific economies was launched by Australian PrimeMinister Bob Hawke in 1989. The concept was nurtured jointly by Australiaand Japan. The genesis of APEC lies in the specific circumstances of the late1980s. The EU was promising to strengthen its customs union and advancingtowards its Single Market Programme, Canada and the US were negotiatingextension of their free-trade area, CUSFTA, to form NAFTA, and the UruguayRound was seemingly stumbling. Asian economies were apprehensive ofbeing left out of the move towards RIAs in a period when failure of themultilateral trading system was a very real threat. For its part, Australia wasconcerned about being left out of an Asian regional body which was beingsuggested by Malaysia.APEC had a fairly humble beginning and was initially greeted with markedskepticism. The basic objectives were economic cooperation and consultation.Although APEC was born as a regional arrangement of sorts, it had adoptedthe difficult, if somewhat paradoxical, mission of combating preferentialregionalism. Accordingly, members explored various ways in whichregionalism can be open. As noted above, this kind of open regionalism waspioneered by the CER.APEC started with meetings between foreign and finance/economicministers and with several relatively small projects. However, since then it hasgrown in scope and prominence, and achieved a more significant status withthe agreement to hold annual summit meetings of heads of state. The first suchmeeting took place in 1993 on Blake Island in Seattle. APEC had twelvemembers at the time of launching. Five of them were industrial economies(Australia, Canada, Japan, New Zealand, and the US), six ASEAN members(Indonesia, Malaysia, the Philippines, Singapore, Thailand and BruneiDarussalam) and the Republic of Korea. Between 1989 and 1994, six morecountries (China, Hong Kong and Taiwan in 1991 and Mexico, Papua NewGuinea and Chile in 1994) joined APEC, increasing membership to 18.A three-year membership moratorium was adopted in 1996. As soon as itended, Peru, Russia and Vietnam were admitted, bringing its membership to21.The criterion for inclusion was that the aspiring member must be on thePacific Ocean, have close economic relations with existing members and
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accept the goal of trade liberalization, at the latest, by 2020. Althoughmembership has now been closed for the next ten years, APEC represents themost significant and diverse group of countries ever assembled. Spanning bothsides of the Pacific Ocean and incorporating two trade super powers – the USand Japan – APEC embraces 40 percent of the global population in 2000,54 percent of global GDP, and 42 percent of world trade. In 2001, the value ofintra-regional exports of APEC was $1938 billion and intra-regional imports$2076 billion, both substantially (almost a third) higher than those for theEU.40Notwithstanding the creation of the APEC secretariat in Singapore and anEminent Persons’ Group, APEC continues to remain a rather looseconsultative forum or an informal body, which was in keeping with theoriginal objectives behind its creation. This was the condition for continuedparticipation of ASEAN economies in APEC. In the early 1990s, it wascriticized by scholars for being a mere ‘talking shop’ (Pomfret, 1995). Initiallythe members of ASEAN were hesitant about joining APEC because they wereapprehensive of being overshadowed by a larger group that included largeindustrial economies. However, they have since adopted the APEC cause astheir own. Joining APEC was partly responsible for up-gradation of APTA toAFTA. An important development of the early 1990s was that Australiabecame more actively involved in the Asian economies and economicdiplomacy.The nature, structure, formation and operating process of APEC werefundamentally different from that of the EU or NAFTA. In some respectsAPRC is an antithesis of the EU – for instance, its informality and loosestructure. These differences originated from the three principal driving forcesbehind the creation of APEC. First, the Asian economies had an idiosyncraticprocess of post-war growth and integration. As explained above, this was themarket-led process of economic integration. Second, many of the regionaleconomies had enormous stakes in the global trading system. Their diversitynotwithstanding, dynamic Asian economies were more firmly committed tothe multilateral trading system under the aegis of the GATT than the otherdeveloping economies. They saw several tangible benefits in the GATTsystem. They benefited from the lowering of tariff barriers under variousrounds of MTNs under the aegis of the GATT. Several of them also benefitedfrom the ‘special and differential treatment’ which was provided to themunder Part IV of the Articles of Agreement of the GATT. Consequently, theseeconomies enjoyed considerable scope for domestic policy autonomy.The chairmanship rotates to a different member country every year.Member countries submit ideas and proposals to the chair for considerationduring the next annual meeting. The member countries consider this process adefinite strength of the APEC forum. It eliminates the possibility of
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dominance by one member and the final agenda can be the amalgam of thebest proposals submitted by the members. A consensus is needed for decisionmaking. This operational style was adopted from the ASEAN. The membersalso agreed to alternate annual meetings between ASEAN and non-ASEANcountries, elevating the importance of ASEAN in the APEC forum(Sakakibara and Yamakawa, 2003).While Asian economies remained avid supporters of the multilateral tradingsystem, they eyed regionalism in other parts of the globe with suspicion. Theywere neither totally convinced of the advantages nor were they passionatelyin favour of forming a formal RIA (Lawrence, 1996). They saw RIAs asunnecessary dependence on large economies. Developing Asian economiesdid not depend on the Japanese market to the degree Mexico or Canadadepended on the US market. The political logic that primarily brought the EUeconomies together in the form of an inward-looking RIA, did not exist forthe Asian economies. Unlike the Europeans, few Asians nurtured the dreamof eventually becoming a United States of Asia. Historical, cultural andeconomic differences among the Asian economies are much too large tosupport such regional arrangements. The distribution of political power inAsia was, and continues to be, highly skewed. The economic prowess of Japanor geo-political power of China would dominate the region for a long time tocome. In the context of APEC, the US would be the most powerful countryboth economically and geo-politically.These considerations were important in shaping the major initiative forregional arrangements in the Asia-Pacific region. Therefore, APEC wasneither conceived as an RIA nor did it have a treaty underpinning its tradeliberalization plan. Funabashi (19