Role Of Subregional And Regional Institutions In Effective Asian Connectivity

Several studies on the history, role, and effectiveness of regional institutions in Asia, Europe, and Latin America have been conducted. Most of them deal with trade and investment, including the need for soft infrastructure. Komori (2007), Poole (2008), Jazic (2005), Cockerham (2009), and Aslan and Aslan (2006) discussed Asia-Pacific institutions such as ASEAN, Asia-Pacific Economic Cooperation (APEC), and Central Asia's Central Asia Regional Economic Cooperation (CAREC). Gomez-Mera (2008) discussed regional institutions and implementation of trade blocks, while Shimizu (2007) compared regional approaches in Europe and Asia. Stinnett (2007) and Davis (2008) examined the structure and impact of regional trade institutions on investment. Laursen (2005a, 2005b) studied institutional requirements for regional economic integration, comparing the EU and the North American Free Trade Agreement (NAFTA) and presented the need for institutions and leadership in EU, the Southern Common Market (MERCOSUR) and other regional integration cooperation programs, while Nabers (2008) compared institution building in Asia and Europe.

Asia has a short history of regional institution building involved in hard and soft infrastructure (e.g., trade facilitation) development. The pioneer regional institute was the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), with 62 member countries and under the umbrella of the United Nations, which was established in 1947. UNESCAP created two major pan-Asia transport initiatives, namely the Asian Highway and Trans-Asian Railway, which were formalized in 1992 even though the concept was realized as early as 1952.

Other major Asian institutions have been developing since 1966 when the Asian Development Bank (ADB) was established. ADB is now a major multilateral development bank with 67 member countries including 46 Asian countries. This was followed by the establishment of ASEAN in 1967 in which 10 Southeast Asian member countries cooperated initially on security issues and later also on trade, finance, and infrastructure. Asia slowly moved towards trade and economic cooperation through the creation of organizations and forums such as APEC, with 21 Asian and non-Asian countries, in 1989, the ASEAN regional forum in 1994, and most recently a comprehensive trade cooperation East Asia Summit in 2005, which brought together the ASEAN member countries, Australia, India, Japan, Republic of Korea, New Zealand, and PRC.

Table 2 [ PDF 17.4KB | 1 page ] presents the structure of international, regional, subregional, and bilateral institutions and programs involved in Asian Infrastructure development. In terms of hard infrastructure development, ADB is the major multilateral financial institution supporting Asian economies in pursuing national, subregional, and regional infrastructure projects for enhancing regional integration, where the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) proposed and supported the pan-Asian projects like the Asian Highway and the Trans-Asian Railway. Regional infrastructure links in Asia so far have been realized through 11 major subregional initiatives including GMS, ASEAN, CAREC, South Asian Association for Regional Cooperation (SAARC), South Asia Subregional Economic Cooperation (SASEC), Pacific Island Forum (PIF), Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), Brunei Darussalam Indonesia Malaysia Philippines – East Asian Growth Area (BIMP-EGA), Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC, Subregional Economic Cooperation in South and Central Asia (SECSCA) and Greater Tumen Initiative (GTI) IN Northeast Asia. Pan-Asian initiatives such as Asian Highways and Trans-Asian Railway (TAR) have been implemented as part of subregional and national programs. Of the subregional initiatives, Greater Mekong Subregion (GMS) has made the most significant progress in strengthening connectivity, mainly through cross-border transport corridors.

The World Bank (WB) has also supported infrastructure development in Asia, but it has been primarily engaged with national infrastructure projects. The European Investment Bank (EIB) has a small infrastructure operation in Asia and since 1993 has been undertaking projects in countries such as Bangladesh, PRC, India, Indonesia, Laos PDR, Maldives, Pakistan, Philippines, Thailand, Sri Lanka, and Viet Nam (EIB 2008).

The institutions involved with infrastructure projects in Asia vary widely in terms of their key characteristics including: major sectoral focus; region of operation; major functions; form of the institution (e.g., formal or informal); highest level of participation from governments of participating countries; and modalities (ADB/ADBI 2009). Table 3 [ PDF 26.5KB | 1 page ] presents these key characteristics of international, regional, subregional, and bilateral institutions and programs involved in Asian infrastructure development. The key features of Asian subregional institutions and programs can be summarized as follows:

1. Most institutions are engaged with both hard and soft infrastructure, including such areas as economic integration, trade facilitation, and transport and energy infrastructure.
2. With the exception of ASEAN and SAARC, all institutions are informal in nature (without any legally binding or enforcement capacity) and even the formal ASEAN follows non-interference, sovereignty, incrementalism, and consensual decision-making.
3. Most institutions have multiple objectives (such as integration, trade, infrastructure, and socio-economic) and a dedicated institution for regional infrastructure is lacking.
4. Most institutions have advisory and regulatory modalities without any financing modality.
5. Most institutions enjoy summit or ministerial-level participation from governments.

As such subregional institutions typically lack financing facilities, they would need to establish strong cooperation and coordination arrangement with financing institutions such as ADB, WB, and Japan Bank for International Cooperation (JBIC) Japan International Cooperation Agency (JICA).

The architecture of major subregional and regional infrastructure institutions shows a similar trend to that of major trade cooperation institutions (see Figure 1 [ PDF 151KB | 1 page ]). In order to accommodate the diversities in Asian economies, Asia's regional infrastructure development is being undertaken through many overlapping subregional institutions, which in turn are operating at varying speeds, addressing different degrees of regional infrastructure issues in, and contain a range of objectives. This pattern reflects political situations in Asia where some subregions are more eager to engage in infrastructure cooperation than others.

It is evident from these trends that to achieve pan-Asian connectivity existing subregional programs would need to be coordinated and integrated to accommodate varying needs, speeds, and interests in subregional and regional integration. These overlapping subregional programs could be the fundamental building blocks for enhancing connectivity across subregions such as East Asia, Southeast Asia, Central Asia, and South Asia, which could in turn extend connectivity across the Asian region as a whole.

Strong and effective national and regional institutions with effective governance and accountability structures are essential for the successful development of an effective pan-Asian connectivity. The roles of these institutions would include the harmonization and standardization of rules, regulations, policies, processes, systems and procedures for the free movements of goods and services across borders. Such institutions would also work to help create enabling environments for private sector participation through Public Private Partnership (PPP) mechanisms.

A regional system will only be as successful as its weakest link, a concept known as the “network challenge”. For a system to be “seamless”, it must have common rules and regulations, which is only possible through stable and transparent frameworks and regulatory regimes. The degree of involvement of the private sector will depend on the clarity and transparency of rules and regulations. Therefore, regional institutions need to play an active role to establish common or harmonized rules and regulations.

Another institutional challenge is to coordinate regional infrastructure projects involving many stakeholders. These include harmonizing standards and regulations and equalizing interests, costs, and benefits, among others. A supranational coordinating body is needed, to demonstrate the political incentive to various stakeholders such as Asian governments and private sector entities joining the forum. This body needs to ensure trust and confidence through transparent and accountable processes and good governance, and should be able to address the information asymmetry between the public and private sector and other stakeholders. The APEC business forum, which fulfills a similar role regarding trade and business facilitation, could be used as an example.

As a result of the global financial crisis and the global economic downturn, many Asian governments have insufficient resources for the required infrastructure investments. Enabling environments for public-private partnerships and mechanisms to mobilize funds from regional capital markets for bankable regional projects need to be created. Many less developed Asian economies need to develop greater technical skills and capacities to be capable of designing and implementing regional projects. This calls for a dedicated institution for identifying and preparing bankable regional projects, mobilizing funds and facilitating their implementation. It also calls for assisting participating countries with capacity building, particularly in terms of human capital, to create appropriate soft infrastructure systems.

Through cost-benefit analysis, this institute needs to demonstrate the comparative advantage of regional projects vis-à-vis national projects. Less developed countries lacking strong debt repayment and technical capacities should be assisted through concessional or grant funds. Ensuring that regional infrastructure is environmentally friendly should be a guiding theme when developing project proposals. As environmentally friendly projects may in some cases be more expensive, they may need to be supplemented with concessional loans, grants, or other means such as clean development mechanism (CDM) certification and carbon credit trading, along with technical assistance from Multilateral Development Banks (MDBs) and other bodies.

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Comment(s)

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1. Sritanu Chatterjee
   (posted 29 June 2010 / 12:13:47 PM)
   
   Dear Sir,
   
   I much appreciate the effort to write this well thought-out paper. It is true that most of the Asian integration has been market driven with a bottom up approach unlike that of NAFTA or EU. But it would have been better as to think about how market driven approach can transform the thinking of national governments to implement the soft infrastructure. Some of the top-down projects that have faced eternal delays are mostly due to changes in market condition. One of the examples is the India-Pakistan-Iran gas pipe line project. The project seemed very attractive and feasible till crude was trading 140 USD and projected to reach 200 USD. But now the whole project is lying in shambles. So I think it is very important to have the soft infrastructure in place and that will expedite the process of regional integration.
   
   The institutional framework presented in the paper is quite elaborate. Some timelines or for the formation of each the teams could have been provided.
   
   Is there any forum still now where the premiers of Asian countries can meet? What I think missing in the papers is the process of initiation of talks for the formation of PAIF Summit Steering Committee.
   
   As crisis helps in creating successful institutions that can change the destiny of nations, I hope that the Asian Connectivity program of ADBI would help in changing the future of 60% of the world population.
   
   Thanks & Regards,
   Sritanu