Building Blocks

Just imagine: it's a sunny winter's day in 2045, and you're arriving in Bangkok airport on the 1:15 from Shanghai. The flight is considered internal, so there's no customs check; you can keep that dark red Asian Union passport in your pocket. No need to pick up any cash, either--you've still got plenty of yuen (the single Asian currency) left over from your previous stops, including Tokyo and Seoul. After your business meetings you head over to the magnificent glass-and-aluminum building that houses the Asian

Parliament. You dodge the cheerful, prosperous-looking tour groups from Laos and Burma and find your way to an exhibition commemorating the 40th anniversary of the founding of the East Asian Community, back in the momentous year of 2005. "It was," reads a sign, "the first sign of light after the long dark years when no one thought that Asians had much of a chance of emulating the European Union."

On Dec. 12, when leaders from 16 Asian countries gather for three days in the Malaysian city of Kuala Lumpur, their deliberations may well determine whether the scenario described above remains a teasing exercise in science fiction--or a genuine vision for the future of the region. The East Asia Summit (EAS) is set to bring together representatives from the ASEAN+3 countries--that's the 10 Southeast Asian nations plus China, Japan and South Korea--and their counterparts from Australia, New Zealand and India. The idea has been percolating for years, but this is the first time that key players in the region have come together for the explicit purpose of deepening integration, not just economically but also politically. The agenda remains vague, but participants will probably talk not only about reducing tariffs and other trade barriers but also about how to intensify cooperation on other fronts, such as energy, avian flu and counterterrorism.

The Asian Development Bank recently revealed that it has started monitoring exchange rates--a move that lays the groundwork for a future Asian currency unit. In a speech in October, ADB president Haruhiko Kuroda discounted the view that the most East Asia can aim for is a NAFTA-type free-trade area. Instead, he argued, "our long-run objective should be the creation of an Asian monetary union with a single currency." He went on to cite the area's deepening intraregional trade as a reason for harmonizing exchange rates (since currency turbulence can have terrible knock-on effects). The benefits could be huge. ASEAN+3 alone encompasses one third of the world's population, one quarter of its GDP and half its foreign-exchange reserves. Some of its members boast the world's highest growth rates. A bloc capable of pooling that entrepreneurial energy and potential resources would represent a potent international force.

Skepticism is clearly warranted. East Asia, critics point out, is hardly comparable to Europe, where the EU members all adhere to a set of shared political values--namely, parliamentary democracy combined with free markets and advanced social-welfare systems. By contrast, the Kuala Lumpur participants include robust democracies (Australia, Japan), communist-capitalist hybrids (China, Vietnam), countries engaged in messy democratization (Cambodia, Indonesia) and one backward military dictatorship (Burma). Territorial disputes abound, and the threat of military conflict hovers fitfully over parts of the region. If anything scuttles the EAS, it could be the continuing tensions between Japan and its neighbors over Prime Minister Junichiro Koizumi's visits to the controversial Yasukuni Shrine war memorial. Last week South Korea and China announced that, at Kuala Lumpur, the three nations won't be getting together in a summit parallel to the one held by ASEAN colleagues.

And then there are the vast differentials in national income. The richest countries in the EU are about 10 times more prosperous than the poorest ones (based on purchasing power parity), while in East Asia today the ratio is more like 100 to 1. It's hard to imagine how such diverse economies could manage to establish a true common market any time soon. Given that vast inequality, it's no surprise that one of the hottest topics is labor mobility; at least one Japanese newspaper has already voiced the opinion that the summit is just a clever gambit by Beijing to open up Japan to waves of Chinese immigrants. Most analysts are keeping their expectations modest. Simon Tay, chairman of the Singapore Institute of International Affairs, argues that the best analogy for the EAS at this stage is the G8, the club of major industrial nations that gets together periodically to air common concerns. Notes Tay: "The G8 meets, we all pay attention to it, but what does it actually achieve straightaway?"

True enough. And yet the meeting in Kuala Lumpur may also end up serving as a salutary snapshot of just how much has already been done. Denis Hew, a fellow at the Institute of Southeast Asian Studies in Singapore, says that over the last 20 years East Asian integration has had two main engines: "There has been a lot of foreign direct investment from Japan to the region, and production networks have been formed. China has now become a new member in this configuration, where you see a lot of parts manufactured here being exported to China and then re-exported to Western economies. Both are driving closer integration." Stephen Leong, assistant director-general of the Institute of Strategic and International Studies in Kuala Lumpur, adds: "Now in the region, we have a very basic institutionalization taking place. Our Finance ministers meet, our foreign ministers meet; we are building a structure. We can already see an East Asian community in the works. It is an inevitability."

Eisuke Sakakibara, a former senior Finance Ministry official in Japan, notes that trade among the countries of East Asia has "increased dramatically" over the course of the past decade or so--to an extent that outsiders may not have recognized. According to the ADB, intraregional trade in East Asia in 2003 accounted for 54 percent of total trade--approaching the level of the EU (64 percent) and higher than that of NAFTA (46 percent). The ADB points out that the 54 percent figure is about the same as that in the EU countries when the Maastricht Treaty was signed in 1992. "Economically," asserts Sakakibara, "we've already reached the stage of Europe." In terms of political integration, he concedes, Asia is still far behind, but that's because the process in Asia has been driven by markets rather than by political elites.

That's exactly the opposite of the situation in post-1945 Europe, where national leaders made a conscious decision to draw their region more tightly together as a way of avoiding future wars. East Asia, by contrast, is strikingly lacking in visionaries like the Frenchman Jean Monnet, who dreamed of European political convergence at a time when the idea looked like utter lunacy. (If anyone, the closest Asian equivalent would probably be former South Korean president Kim Dae Jung, who back in 1998 provided the impetus for the current summit.) The flurry of free-trade agreements sweeping the region shows that national leaders have finally started to follow where businesses long since began to tread. Japan, China and South Korea have all signed ASEAN's Treaty of Amity and Cooperation, which calls for the settlement of disputes by peaceful means and noninterference in the internal affairs of other countries. And the ASEAN Regional Forum has been used by ASEAN and China as a "confidence building" mechanism to smooth out security problems in the South China Sea.

If you thought the alphabet soup in Europe was bad, get ready for the East Asian version. EAVG, NEAT, ARF, AMM+3: they're but a few of the regional mechanisms that are already bringing bureaucrats, businessmen and scholars together to puzzle out shared concerns. ASEAN+3, now in its ninth year, has 48 ongoing projects promoting community building and economic integration. The so-called Chiang Mai Initiative brings together central banks from the ASEAN+3 countries in a forum aimed at preventing a recurrence of the financial crisis that shook the region in 1997. Then there's the Asian Bond Fund, inaugurated by the ADB, which has been quietly trying to enhance the liquidity and stability of regional bond markets. Masahiro Kawai, head of the ADB office of regional economic integration and special adviser to the ADB president, tells NEWSWEEK that while the idea of a common currency "has a long way to go," it "will help increase trade, investments and cross-border economic transactions, because of the stable exchange rate."

While those are priorities for Southeast Asian nations--trade between ASEAN and China has been surging by 20 percent anually in recent years--they're also concerned with reining in a newly powerful China. The Japanese voice similar concerns. When Japan learned that the United States hadn't been invited to the summit, Tokyo lobbied vigorously for including Australia and India as counterweights to China. Although irked by America's perceived failure to help out after the 1997 financial crisis, many leaders in the region are not eager to replace U.S. leadership with Chinese hegemony.

Still, when the dust settles in Kuala Lumpur, the summit will probably be judged less on the basis of grand strategic calculations than on the nuts-and-bolts issues that promise to deliver economic growth. One of those invited to the EAS is Tony Fernandes, CEO of AirAsia, a no-frills airline that's arguably the only ASEAN regional brand. He credits ASEAN with helping to keep the peace, but sees plenty of room for measures that would promote his business--tax incentives for cross-border investment, greater labor mobility, industry deregulation. His airline still doesn't have full landing rights in Singapore, so many of his planes are landing at a nearby airport in Malaysia. One of his biggest headaches, says Fernandes, is getting approval for a bus that can bring passengers across the border between the two countries. In short, before any grand dream can be realized, lots of little problems must be solved.