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Deepening regionalism in Europeand ASEAN – the role of an economicconstitutionPhilomena Murray a & Gabriele Orcalli ba School of Social and Political Sciences, the University ofMelbourne, Melbourne, Australiab Department of Economics and Management, University of Padua,Padua, Italy

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Journal of the Asia Pacific EconomyVol. 17, No. 3, August 2012, 426–445

Deepening regionalism in Europe and ASEAN – the roleof an economic constitution

Philomena Murraya∗ and Gabriele Orcallib

aSchool of Social and Political Sciences, the University of Melbourne, Melbourne, Australia;bDepartment of Economics and Management, University of Padua, Padua, Italy

The article examines the creation of an internal market in Europe and Southeast Asiafrom the perspective of constitutional economics. It assesses whether the success orfailure of a regional integration process depends on the quality of the economic consti-tution that is chosen by participating countries, that is, on the set of rules and institutions,which bind the actions and transactions of operators within a jurisdiction and towardsthe operators of other jurisdictions. The article commences with an overview of theanalytical instruments of constitutional economics in order to evaluate the success ofa regional agreement on the basis of the ‘quality’ of its economic constitution. It thenexamines internal market creation in the EU and the Association of Southeast AsianNation (ASEAN). The article concludes that it is the commitment to the implemen-tation of a social contract that determines the successful establishment of a singlemarket.

Keywords: constitutional economics; regionalism; integration; Europe; ASEAN; singlemarket

JEL classifications: F13, B52

1. Introduction

The process of regional integration has long been the subject of scholarly debate. Regionalintegration agreements (RIAs), rather than multilateralism, increasingly define the contextof international trade diplomacy. This is particularly the case following the stalling of theDoha Round of the World Trade Organization (WTO) negotiations and recent initiatives fora regional community in Asia and the Asia Pacific (Rudd 2008, Hatoyama 2009). Scholarlyresearch has often focussed on how the effective relationship between economic integrationand institutional integration (Alesina et al. 2001, European Central Bank [ECB] 2002) canlead to the success of integration processes. For example, scholars have argued that the moreintegration advances beyond the creation of a custom union towards a common market andan economic and monetary union, the deeper was the resultant integration, which ‘in turncorroborated and sustained the process of institutional integration’ (ECB 2002).

This article attempts to fill a gap in the scholarly literature on comparative regional inte-gration by focussing on the nature of the economic constitution rather than the importanceand quality of formal institutions. It examines the relationship between institutions and eco-nomic integration from the perspective of constitutional economics, that is, as explainedby James Buchanan (1990) ‘ . . . a research program that directs inquiry to the working

∗Corresponding author. Email: pbmurray@unimelb.edu.au

ISSN: 1354-7860 print / 1469-9648 onlineC© 2012 Taylor & Francis

http://dx.doi.org/10.1080/13547860.2012.694698http://www.tandfonline.com

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properties of rules, and institutions within which individuals interact, and the processesthrough which these rules and institutions are chosen into being’, and assesses whether anRIA’s success or failure depends on the economic constitution chosen by the participatingstates. In particular, the article examines the EU’s achievement of the single market, afrontier-free market with the objectives of the free movement of goods and services, labourand capital, free of tariff and non-tariff barriers to trade, all constituent elements of RIAs.As we illustrate in this article, the choice of an appropriate economic constitution has beenfundamental to the EU’s success in bringing about a single market. Drawing on the workof constitutional economists, we argue that such an economic constitution is essential forthe success of an RIA that aims to create a single market.

The term economic constitution, which is the object of research of constitutional eco-nomics, refers to sets of rules and their enforceability, and the contractual nature of the‘constitution’ itself. We draw on the Freiburg School’s definition of an economic consti-tution, namely the inclusive decision by a community about how its economic life is tobe ordered (Vanberg 1998). Considerable scholarly attention has been devoted to the EU’seconomic constitution (Streit and Mussler 1994, 1998, Vibert 1995, Buchanan 1996) andour article draws on their contributions in order to comparatively analyse the EU and theAssociation of Southeast Asian Nations (ASEAN), which aims to create a single marketby 2015 (ASEAN 2008).

We argue that the failure, to date, to bring about a single market in ASEAN is largelydue to its difficulty in constructing an economic constitution as a form of a social contract –and not simply as a contract relating to the market. Vanberg defines a social contract in thefollowing way:

From a constitutional perspective, the – explicit or implicit – social contract . . . that underliesany organization can be viewed as an exchange . . . namely an exchange of commitmentsamong the contracting parties to accept constraints on their future choice options . . . Thesocial contract establishes relations among the participants that are different in kind frommarket exchange relations . . . (Vanberg 1994, p. 140)

We adopt the constitutional approach as an alternative to a market exchange paradigm,whereby individuals (and nations) participate in an activity in terms of a type of advantage(return) and cease to participate if the return is inferior to the opportunity cost of theircontribution (March and Simon 1958, p. 84). The constitutional approach insists lesson the existence of common interests or objectives than on the constraints which eachparty undertakes to respect and which essentially determine the economic constitution ofthe agreement. According to the constitutional approach, the constitution of a regionalagreement must specify its modus operandi by tackling two main problems: which rulesdetermine how decisions that are jointly taken by all members can be enforced and howcan distributive issues be addressed? Distributive issues are crucial because joint decisionsproduce a single, indivisible result, which cannot be shared among members in proportionto their contribution.

This article examines the factors that lead to the creation and sustainability of an eco-nomic constitution for a RIA. Section 2 draws on the analytical instruments of constitutionaleconomics to evaluate the success of a regional agreement on the basis of the ‘quality’ ofits economic constitution. Sections 3 and 4 are devoted to the comparative analysis of thecreation of the internal market in the EU and in ASEAN. The article concludes that it isthe commitment to the implementation of a social contract that determines the successfulestablishment of a single market.

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2. The economic constitution of a regional integration agreement

The key challenge for the establishment of an RIA is to institutionalise regulatory proceduresthat establish a correlation between the complexity of individual trade relations – which arelinked to the level of specialisation – and the complexity of those institutions that allow fortrade to take place:

the greater the specialisation and the number and availability of valuable attributes (of com-modities, services and the performance of agents) the more weight must be put on reliableinstitutions that allow individuals to engage in complex contracting with a minimum of uncer-tainty about whether the terms of the contract can be realised (North 1990, p. 34)

In our view, the economic constitution of a RIA, that is the sets of rules and theirenforceability that permit individual trade relations, can be regarded as a ’reliable institution’in North’s sense.

An international or regional economic order created by an economic constitution couldresult in this order becoming the structure and systematic pattern of economic activities,given that, as Eucken (1992) argues, all economic activities take place within, and can beunderstood in the context of, that order. Eucken (1992) and Bohm (1989), for example,claim that economic orders are subject to collective, political choices, whereas market-basedorders have evolved over centuries, rather than being the result of constructive deliberation.However, economic orders can be improved through reform. The challenge of achieving anefficient economic order cannot be resolved by the spontaneous development of economicsystems. Rather, as Eucken (1992, p. 314) argues, the economic system has to be consciouslyshaped and applied to economic policy, trade policy, credit, monopoly, tax policy, companyor bankruptcy law, and indeed to the entire economy, national and international, and its rules.

These problems have been addressed, not without difficulty, by the WTO. Most agree-ments that seek to successfully resolve the trade-off between trade liberalisation and thenational regulation of economic activities have met with insurmountable obstacles due tothe diverse nature of their constituent parts. In only a few cases has the WTO managed toaddress such issues (such as TRIPs, Trade-Related Aspects of Intellectual Property Rights)by satisfying enough interests in order to agree on international norms.

In the light of these challenges, many countries have negotiated regional agreementsto resolve the trade-off through the adoption of common rules. The hypothesis underlyingour interpretation of the role and success of the RIAs is based on North’s argument: themore the global economy integrates, the more rules and institutions become important atboth supranational and macro-regional levels. Further, the choice between a multilateralsolution and a regional one depends on the establishment and maintenance of commonrules among countries.

In constitutional economics, the ability of an economic system to adapt to changesin the environment depends on its economic constitution: that is, on the set of rules andinstitutions that bind the actions and transactions of actors within a jurisdiction and inrelations with actors of other jurisdictions. The effectiveness of an economic constitutionis determined by its ability to channel the choices made by private and public agents.This ability, in turn, depends on the quality of the rules of the jurisdiction. Constitutionaleconomics distinguishes between two levels where choices can be made: the constitutionallevel where the rules defining the jurisdiction are chosen, and the sub-constitutional levelwhere choices are made within the rules. In the case of an RIA, a distinction is madebetween the choice of an economic constitution (general rules) and the choices made byprivate and public individuals within these general rules. The success of an RIA needs to

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be assessed on the basis of whether it can build an efficient economic institution for a ‘new’type of jurisdiction and choose the ‘rules of the game under which the citizens of a politymay wish to live’ (Vanberg 2001, p. 34).

An RIA can be understood as a constitution-based organisation, that is, a decision-making and acting unit, or corporate actor (Coleman 1974). Coleman has extensivelyanalysed the procedures of collective and organised actions and Vanberg (1994), drawingon Coleman, provides a model to explain organisations: individuals (or the state) set up anorganisation when resources are shared, such as commercial or regulatory policies. These areused jointly according to established procedural rules. The collective use of joint resourcesis therefore subject to those procedural rules that serve to identify the organisation itselfrather than its objectives. In Vanberg’s interpretation, procedural rules are constitutions,in that they constitute the organisation as a corporate actor: ‘The very essence of being amember of an organisation is to give up separate control over certain of one’s resources, andto submit them to an organisational decision-making procedure in which one may have –or may not have – a vote’ (Vanberg 1994, p. 136).

A constitution, therefore, specifies the operational criteria of an organisation, particu-larly in order to resolve any fundamental issues that (inevitably) arise from joint actions,such as the rules governing collective decision-making and distribution problems. These lat-ter problems arise because the action of an organisation cannot distinguish among memberson the basis of their input. Therefore, outputs of collective actions cannot be proportionallyredistributed. This results in a constitutional problem, as it gives rise to rules or principlesgoverning distribution. Solutions to these issues relate to the constitution’s ‘quality’. Thegreater the collective action, the greater the need to find efficient solutions to both thedecision-making procedures and the distribution of joint products.

Constitutional economics facilitates a clear identification of the fundamental issues thatunderlie constitution making. In Buchanan and Vanberg’s interpretation, the possibility ofsetting up an organisation and legitimising it for its members derives from the relationshipbetween the social-contract notion and the dialogue notion of an agreement. Individualinterests determine the constitutional process of rule building. In our comparative case, thesecoincide with national interests where ‘fairness’, the basis of the agreement’s legitimisation,depends on members joining voluntarily. The agreement effectively becomes a form ofcontract, seeking to define terms and conditions that are mutually acceptable to thosepersons or states that enter into it voluntarily.

Constitutional procedures that rely on the ‘dialogue notion’, on the other hand, lead toan agreement where ‘fairness’ is reached by identifying that conduct that is advantageousto all members of an organisation. Here, ‘fairness’ is not a compromise between conflictinginterests, nor is it the outcome of common rules that restrict individuals’ actions. Rather, itis the result of a process of understanding what is best for all members of an organisation.This constitutional procedure is therefore based on knowledge and may eventually definenew national interests, based on what appears to be objectively fair.

What this means is that agreement about a constitution arises from the interrelationshipof theory and interests, keeping in mind that ‘the contractarian and the dialogue interpre-tation’ of a constitutional agreement cannot be separated or opposed to each other in ourstudy of how rules are established (Vanberg 1994, p. 173). Vanberg emphasises the need tointegrate both notions in the distinction between constitutional interests and constitutionaltheories, as distinct, yet substantial, components of constitutional preferences and decisions.Constitutional choices may then lead to both an evaluation of the effect of rules proposed bythe individual members, and a prediction of the properties of those rules. The constitutionalprocess can consequently be based on either a compromise (when disagreements are to be

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settled), or on the search for a common evaluation of results (when the disagreement is dueto differences in the theories).

Therefore, constitutional choice in the process of forming an RIA is rendered crucialand depends on two distinct, though related, issues. The first is whether the difference ininterests is so great as to prevent an agreement based on common rules. The second is theextent to which insufficient common knowledge regarding the effects of common rules mayprevent or inhibit agreement. These two issues can have different implications and can leadto different kinds of constitution building. Josselin and Marciano illustrate two opposingmodes of constitution building: those constitutional conventions (Common Law) as opposedto written, contractualist constitutions (Statute Law; Josselin and Marciano 1995). Theformer give rise to a spontaneous social order according to the evolutionary interpretation ofMenger and Hayek (Witt 1989), whereas the latter are part of the contractualist interpretationof Brennan and Buchanan (1985).

Two different concepts of law are associated with the conventional and contractualconstitutional interpretations. Conventional constitutions are considered to be governed bycustomary rules in which common knowledge results from shared traditions and under-standing. In contrast, the contractual interpretation relies on specifically construed com-mon knowledge. This type of Common Law consequently produces unwritten constitutions(Elster 1994, cited in Josselin and Marciano 1995) or organic constitutions, such as theBritish Constitution, whereas Statute Law produces written constitutions like those of mostof Western Europe (Yandle 1991).

Constitution building must therefore take into account the possibility of creating normsby means of conventional processes, insofar as conventions are closely related to sociallyuniform patterns of behaviour. Such conventions may spontaneously emerge and becamecommon knowledge. In the case of an RIA, any attempt to find a constitutional system,capable of guiding the actions of economic operators and relationships among memberstates, must acknowledge that largely diverging preferences hinder regulation when this isnon-written and is based only on common knowledge. Furthermore, processes that involvecommon knowledge lead to communication challenges. Consequently, there is a need toengage in a greater number of experiments with other individuals because of the inductivenature of their knowledge (Josselin and Marciano 1995).

The British tradition of Common Law addresses these issues by means of the ‘Rule ofPrecedent’ (stare decisis), with an ‘impartial spectator’ such as a Common Law judge or leg-islator, who sets general and constitutive rules based. Differences in customs in the contextof an RIA, especially when they are significant, hinder the creation of a customary rule.

A constitution based on common knowledge and created through a process of inductionwhereby ‘people only know what they have experienced’, requires, in practice, as manyexperiences as there are people (Josselin and Marciano 1995). Josselin and Marcianoreassess the issue of inductive knowledge in terms of the aggregation of preferences: thelarger the number of actors involved, the larger the diversity of experiences. Consequently,aggregating preferences to create efficient constitutional rules becomes all the more difficult.A case in point is the EU. Its aim to create a common economic constitution among manydifferent nations, regions and cultures, and whose diversity increases with each enlargement,has met with obstacles over time.

3. The case of the EU

Contrary to the conventional view of constitution building, based, as Josselin and Marcianohave noted, on a spontaneity coming from the conjunction of internally coherent individual

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actions, the EU’s economic constitution is based on a difficult compromise among differentnations and legal traditions. These difficulties highlight the need for an RIA that is based ona contractual procedure that leads to a written constitution and creates a system of normsin which the actions of both private and public economic operators are legal and complywith explicit rules. The EU’s economic order, which results from a continuous processof de facto constitution building, has involved a series of difficult compromises betweenwhat is best for the Union (common interests and objectives for integration), and what ismutually acceptable to individual member states (conflicting national and sub-national and,increasingly, social movement interests which require contractual and compensatory rules).

In effect, in EU economic constitution building, the creation of an internal market hasbeen pivotal, largely supported by the member states, where the functional properties ofa market must be guaranteed by law, even in cross-border economic transactions. Theseshared objectives exist alongside a series of interventionist policies such as agriculturaland industrial policies, which mediate between the diverging interests of the member statesand the common objective of creating an internal market. Therefore, any analysis of theEuropean economic constitution needs to take into account both aspects, which, althoughdifferent, are part of the same constitutional design.

3.1. Shared objectives: creating an internal market

The functional properties of an internal market consist of private autonomy, on the onehand, which allows private operators to reach their objectives, and the management ofthe relationship between private operators through self-coordination, which results fromexchange and self-control in the context of competition, on the other. States intervene inorder to guarantee these functional properties within the internal market. In the EU, there isalso a requirement to ensure that economic operators are not prevented from pursuing theirinterests by the rules and policies of other member states. The EU’s economic constitutionmust therefore

(1) Guarantee economic freedom through the free exchange of goods and services,the mobility of persons and capital and the right of establishment. These arefundamental rights which the EU must guarantee its citizens by means of rulesthat supersede national rules and must therefore be enforced by supranationalinstitutions such as the European Court of Justice (ECJ).

(2) Limit the discretionary power of member states when national policies can be usedto constrain and restrict individual liberties.

(3) Limit its own discretional power to prevent the EU’s own institutions from con-straining individual liberties (Mussler and Wohlgemuth cited in Streit and Mussler1994).

These requirements can be enforced by the relevant Treaty, which regards the internalmarket as a self-organising system that also eliminates tariff and non-tariff barriers, andmeasures to ensure competition and to manage common trade policies. These rules fallunder the competence of the EU and aim to create and improve the institutional frameworkallowing private operators to make autonomous decisions. Together, these rules define aninstitutional framework based on a number of conditions. The first is to establish funda-mental economic freedoms in the form of the rights of individual European citizens, ratherthan a declaration. The second is to ensure these freedoms are protected from private distor-tions (competition policies) and from any restrictions imposed by the activities of member

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states, including those linked to internal intervention policies (state aids, regulations, publicundertakings). The third condition is the legitimisation of EU competencies resulting frommember states’ shared interpretation of the solution offered by the ECJ to the problem ofterritorial law. According to the ECJ, the European Economic Community (EEC) Treatyhas been significantly different from the integration programmes of public internationallaw insofar as ‘the Treaty is the constitutional charter of a community based on the rule oflaw’ (ECJ 1991). The solution is to transform the obligations of member states to eliminatetrade barriers into the individual rights of European citizens (Streit and Mussler 1994).

This institutional framework was subsequently further reinforced, particularly by ECJrulings. For example, the Dassonville case opened the way for the liberalisation of intra-Community trade by eliminating technical barriers and establishing that ‘all trading rulesenacted by member states which are capable of hindering, directly or indirectly, actuallyor potentially, intra-Community trade are to be considered as measures having an effectequivalent to quantitative restrictions’ (ECJ 1974). Further Court rulings reinforce theCommunity’s economic constitution by identifying the Community as a constitution for theintegration of markets, or, as Streit and Mussler (1994) claim, a constitution designed toachieve integration by means of competition.

Therefore, the elimination of technical barriers arising from regulatory differences –in the constitutional context of rules, incentives and constraints – comes about through theprinciples of policed decentralisation and mutual recognition. In other words, member statesare entitled to produce national regulations as long as these rules do not then interfere withthe common rules of safeguarding competition, with the Community’s judicial review andthe existence of certain monitoring devices, which have legal authority (Pelkmans 1996).These are, firstly, the detailed monitoring, complaints and infringement system run by theEuropean Commission (based on existing national regulations); and, secondly, the work bythe 83/189 Committee that checks every proposed national economic regulation in draftstage, with the power to halt national legislative processes where deemed necessary.

Finally, member states are prohibited from making rules on any given matter whereCommunity regulations (in the form of approximation directives) already exist. The EUlegislates on matters that fall exclusively under its competence and on matters of technicalregulation – an area in which there is a concurrent competence – once the subsidiarityprinciple has been adhered to; in this case, Community directives are still subject to theprinciple of proportionality.

There are clear differences in the methods used by the EU to eliminate technical barriersand the methods used, or proposed, on a multilateral or macro-regional level. Both cases areguided by the principles of decentralisation and mutual recognition, but it is only in the EUcontext that these principles are constitutionalised and therefore subjected to more bindingincentives and obligations. Furthermore, it is only in an EU context that the economicconstitution accepted by member states can allow the EU to approximate rules within thelimits of the subsidiarity and proportionality principles.

3.2. Resolving conflicting interests: intervention policies

In considering Vanberg’s claim that agreements about a constitution are the result of acorrelation between theory and interests, it is noteworthy that the EEC Treaty and espe-cially the Maastricht Treaty referred both to a definition of an economic constitution fora market system (dialogue notion), and to a series of non-market (intervention) policies(contract notion). These intervention policies are aimed explicitly (regional or agricultural)or implicitly (trade or industrial) at composing different national interests.

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Support for common intervention has been increasing, in the aftermath of the SingleEuropean Act and the Maastricht Treaty, especially in economic and social cohesion andindustry policy areas. The Commission has a mandate to use significant funds for regionalredistribution interventions, and can also intervene in the ‘common interest’ to favourcompetition in European industries. The Maastricht Treaty’s reference to the Commission’smandate can trigger a mechanism that Streit and Mussler (1994) call ‘picking the winnersand helping the losers’, which can increasingly lead the market to predetermined outcomesand distribute the advantages of market integration and industrial policy interventions soas to resolve redistribution conflicts arising between member states.

Clearly, there is some concern that this will lead to some form of rent-seeking com-munity given the concept of ‘common interest’ is in itself largely ambiguous and is oftenthe sum of sector interests, government interests and the Commission’s drive to wieldmore power and influence (Vaubel 1999). This ‘cartel’ of specific interests can be seenin the Commission’s well-established consultation and partnership procedures for busi-nesses, organisations representing sector interests (industry lobby groups, special interestgroups), local and regional authorities that operate through Regional Committees; com-pulsory consultations between the Commission and the associations of management andlabour, which is required before the submission of proposals (Article 3, Agreement on So-cial Policy), to decentralise common policies (Commission of the European Communities2001).

In conclusion, the evolution of the intervention procedures of European institutionscharacterises the EU as a Community that is constitutionally based on theory (commonadvantages which are shared and due to the creation of an internal market, i.e. what isbest for all) and on interests (the need for economic policy interventions to obtain what ismutually acceptable).

It would be an over-simplification to assume that the EU has efficiently fulfilled all ofthe conditions set out above. This is because the EU is the product of considerable politicalnegotiations and of the conflict of national and EU interests. Solutions to such conflictscan prove to be very costly for all. For example, the Common Agricultural Policy (CAP)is the result of intense bargaining and has cost the EU dearly, yet it has remained central tothe regional integration bargain of the EU over time. Building the single market requiredthe costs of compromise such as those based on the CAP. Obviously, these costs must beless than the advantages of creating a single market. Moreover, although the creation ofa ‘Europe without borders’ may render some further deepening of the integration processnecessary, such as a single currency, for example, the current crisis of the euro system, withthe difficulties that it is experiencing in balancing differing national economic interests andconditions is a demonstration of the potential costs of an advanced RIA. This does notimmediately render it a useful model for ASEAN.

4. The case of ASEAN: the premises

The development of ASEAN has been markedly different from that of the EU. The currentmembers of ASEAN are Brunei Darussalam, Indonesia, Malaysia, the Philippines, Sin-gapore, Thailand, Vietnam, Laos, Burma Myanmar and Cambodia. The Association wasformed by Indonesia, Malaysia, the Philippines, Thailand and Singapore with the BangkokDeclaration of 8 August 1967 to accelerate economic growth, social progress and culturaldevelopment in the region, as well as seeking to bring about peace and stability in the ColdWar era (ASEAN 1967). These objectives do not in themselves differ markedly from thoseof the EU. However, ASEAN was, at its creation, and remains, firmly intergovernmental

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in format, with a policy of non-interference in the affairs of partner nations. This is acharacteristic feature of ASEAN, which is unlikely to change in the near future, with neg-ative implications for the feasibility of the implementation of a single market in ASEAN.There are no supranational institutions, although the ASEAN Charter (2007b) conferred alegal personality on ASEAN for the first time. There have been considerable efforts withinASEAN to institutionalise regulatory procedures so as to establish some correspondencebetween the complexity of individual trade relations and the multilateral efforts at tradeliberalisation within the context of the WTO. It remains opposed to creating a system ofrules that undermines members’ national sovereignty. The principle of consensus is basedon respect for sovereignty and the value of each constituent state. The intense politicalbargaining and compensatory mechanisms that are so integral to the EU’s development arenot part of the ASEAN plan, despite the ASEAN Charter (ASEAN 2007a, 2007b), as thereis no equivalent of an EU Own Resources budget, which allocates compensatory fundsthroughout the member states.

Yet for some time there has been a desire for more institutionalised mechanisms forcooperation, such as improved coordination, and more prompt implementation of decisionsand agreements, as well as a swift response to new opportunities and challenges (ASEANSecretariat 2007). The Charter sets out that the ASEAN Summit meets twice, instead ofonce, a year, and that, similar to the EU’s General Affairs Council, the ASEAN ForeignMinisters acts as the Coordinating Council. Further organisational aspects are evident inthe provision for a ‘Single Chairmanship’ lasting a year, for key high-level ASEAN bodies.A recent achievement under the ASEAN Charter is the appointment of Member States’Permanent Representatives to ASEAN, to form a Committee of Permanent Representatives,to be known as the CPR and based in Jakarta since 2010, which is similar to in theterminology of the EU’s COREPER, although its functions are more circumscribed innature.

Jones and Plummer have suggested that, in using the term ‘economic community’ todescribe ASEAN, its leaders have proven themselves amenable to the idea of learning fromthe European integration process (Jones and Plummer 2004, p. 830). Certainly the desirefor an ASEAN Economic Community (AEC) had increased and this was evident in theprovision of a mandate to the Eminent Persons Group to provide a report on regionalism.This represents a change in thinking, as the EU, with its highly formal approach to integrationand penchant for supranational institutions and far-reaching regional economic policies, hashitherto been in many ways the antithesis of (looser) Southeast Asian cooperation. Indeed,all of East Asia has been the primary example of a region where economic integrationhas proceeded through regionalisation, rather than regionalism (Dent 2008, Warleigh-Lack2008). Growing shares of intra-regional trade and investment flows have been led by marketactors, rather than by government initiatives in the form of Preferential Trading Agreements(Jones and Plummer 2004, p. 829). Intra-regional trade has increased considerably withinASEAN in recent years, although many ASEAN members now trade more with Chinathan they do with each other and this is likely to increase with the implementation of theASEAN-China Free Trade Agreement (FTA). Figures 1 and 2 provide details of trends inintra-regional trade in ASEAN and the EU.

The role of state actors, as we have seen above, is crucial to the development of con-stitutional contexts for trade. The past, relatively informal approach of ASEAN forms adistinctive tradition of interstate diplomacy and cooperation. While the ASEAN Charter re-flects a move to consider more active government participation in regional market building,regionalism in East Asia and Southeast Asia is still defined as ‘shallow’. Ravenhill (2009,p. 26) has pointed out that

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Figure 1. Intra-regional trade share in the EU. Source: Regional Integration Knowledge System,http://www.cris.unu.edu/riks/web/ [Accessed 2 November 2010].

By choosing shallow arrangements, East Asian governments have limited the effects – bothpositive and negative – such agreements will have on domestic interests and on economicwelfare more generally, and, consequently, on the political dynamics they will set in train. Theshallowness of current East Asian regionalism reflects the primacy of political motivations indriving inter-governmental agreements on trade and finance.

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Figure 2. Intra-regional trade share in ASEAN. Source: Regional Integration Knowledge System,http://www.cris.unu.edu/riks/web/ [Accessed 2 November 2010].

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There has been little substantial agreement on deep trade liberalisation, and particularlythe eliminations of non-tariff barriers to trade within ASEAN to date. Tariff costs arerelatively low, according to a recent report, but non-tariff barriers remain high (Duval andUtoktham 2010, p. 15). Rather, unilateral liberalisation coupled with active participationat the multilateral level have characterised the ASEAN success story. The aftermath ofthe Asian financial crisis of 1997–1998 led to more active involvement of the nationalgovernments as key actors in global and regional liberalism in ASEAN. This is not tostate that there is necessarily a confluence of interests regarding the value of a more openapproach to constitutional structures with their binding elements, nor an emulation of theEU as a putative paradigm (Jetschke and Murray 2012).

It can be argued that the past comparative lack of deep and embedded institutionalisedintegration in ASEAN, and in particular, the lack of comprehensive effective elimination ofnon-tariff barriers to trade, is largely attributable to an inadequate economic constitution,which does not regulate contracts sufficiently. This is for two reasons. Firstly, there has longbeen a lack of willingness by governments to agree to the introduction of supranationalregulation or even effective and comparable transnational regulation, due in part to themassive economic disparities among the member states, ranging from Laos and Cambodia,on the one hand, to Singapore on the other. Secondly, as we discuss in the following section,there is a lack of leadership and political will to confront the need for compensation, and itis not, to date, an important element of an ASEAN consensus.

In the context of the choice of economic constitution, between a conventional onealong the lines of Common Law and a contractual, continental one of Statute Law, thereis evident in ASEAN, in line with its core principles, an interest in ‘Anglo-Saxon’ typesof constitutional convention or Common Law, in the sense that it does not involve writtenaccords but, rather, relies on informality (Josselin and Marciano 1995). It is clear thata constitutional convention was not possible due to considerable cultural, economic andpolitical heterogeneity and the lack of an accumulated common experience of economiccooperation as facilitating factors. Consensus traditions and the lack of a clear regionalleader (or set of leaders) have also impeded advances and ASEAN has therefore beencharacterised by a weak economic constitution with little possibility of institutionalisation.Institutionalisation remains a Western, and especially European, method of dealing withthe need for an economic constitution, while a looser architecture has characterised theSoutheast Asian approach to regionalism.

Southeast Asian states are historically averse to legalised, formal regulation and havebeen traditionally reluctant to enter into formal cooperative commitments on regulatoryissues (Hamilton-Hart 2003, p. 224). There is therefore a contradiction between the lack ofcapacity to realize a constitution based on Common law, on the one hand, and the wish notto pursue the route of a contractual constitution (Statute Law) on the other.

Dent suggests that East Asia’s comparative heterogeneity led to the prominence of state-centred rather than region-centred objectives, in marked contrast with the EU’s approach(Dent 2001). Angresano (2004) suggests that ASEAN, as an administrative body, has beenlargely decentralised so as not to interfere with the desire of its constituent states for politicalindependence. Thus, traditionally, the political leaders of ASEAN states had expressed littleinterest in any ‘institutional frameworks that might give potential Asian superpowers . . . amajor voice in their national affairs’ (Angresano 2004, p. 919).

A further challenge regarding cooperation in a single-market context is that the South-east Asian nations ‘still view themselves as distinct and competitive’ and most ASEANcountries are relatively small- or mid-sized economies and their foreign trade orientationhas been towards richer trading partners outside of their regional grouping, such as Japan,

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the US and the EU (Angresano 2004, p. 920) in the past and, more recently, towards China,with whom ASEAN has signed a FTA. Thus, unlike EU members, the composition ofoutput and trade orientation of ASEAN economies limits potential gains from economicintegration.

Just as a succession of past crises led to a re-evaluation of the EU’s direction and role, thishas also been the case in ASEAN’s recent past. The 1997–1998 financial crisis, for example,led to a significant appreciation of the benefits of closer regionalism. The responses to crisesdiffered in scope, however, as formal cooperation can be lower than might be expected,especially after a considerable crisis, if, as Hamilton-Hart argues, regulatory policy areasare not backed up by government capacity. Of course, trade and investment liberalisationcan also be enhanced through other, non-formal means, such as the consolidation of trust(Hamilton-Hart 2003, p. 231).

Furthermore, the rule of law in Southeast Asia is weaker than in Europe and thatdifference in practices and social cultures could render the ‘rule of law’ concept difficult.Considering these premises, the building of a single market, although accepted by allparticipating countries as a common objective (what is best for all), remains a challenge.

4.1. Shared objectives: creating an internal market

In 2003, ASEAN established a clear objective: to create a single market (ASEAN declaration2003). Initially, there has been progress on mutual recognition agreements and conformityassessment regarding certain industrialised goods, with slower advances in other areas(Lloyd 2005) although the recent AEC Scorecard presents a picture of increased functionalcooperation (ASEAN 2010), with just over 73% of targets achieved in 2010. ASEANmembers are committed to bring about the free movement of goods, services, skilledlabour and capital, with targets to realise a competitive economic region and equitableeconomic development alongside the liberalisation and facilitation of free flow of goods,service, investment, skilled labour and capital (ASEAN 2010). Just as there is differentiatedintegration within the EU, so too in ASEAN there is the possibility of core groups developingwithin ASEAN that are issue-based but do not include all of ASEAN (Lloyd 2005, p. 263).

Nevertheless, ASEAN’s aim to create an AEC, to ‘create a stable, prosperous andhighly competitive ASEAN economic region’ with free movement of goods, services andinvestment as well as ‘a freer flow of capital’, equitable economic development and reducedpoverty and socio-economic disparities by the year 2015, seems somewhat ambitious forthat date. Further, it regards key steps towards an AEC as being: the institutionalisationof new mechanisms and measures to strengthen the implementation of existing economicinitiatives such as the ASEAN Free Trade Area, ASEAN Framework Agreement on Servicesand ASEAN Investment Area; the acceleration of regional integration in a number ofsectors1 and the facilitation of movement of what it calls ‘business persons, skilled labourand talents’.

Progress has been incrementalist in terms of the creation of an economic community,yet political leadership needs to be increasingly focussed on concrete achievements. TheASEAN Secretary General has noted:

for an ASEAN Community to become a reality, ASEAN requires a higher level of politicalwill and collective commitment, more systematic and concerted efforts, clear-cut strategicschedules, certainty of implementation, efficient monitoring and reporting on compliance, andeffective dispute settlement systems. In this regard, the ASEAN Charter and the Roadmapfor an ASEAN Community (2009–2015) consisting of the three Community Blueprints and

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the Initiative for ASEAN Integration Work Plan 2 capture these requirements for communitybuilding (Pitsuwan 2009).

Although there is progress in the desire for a common market,2 there is, to date, littledevelopment of a notion of a social contract. ASEAN regulations for a market communityare not as yet sufficient to enact a single market of good, services, labour and capital.Intra-regional trade, although increasing, remains low, and there remain tariffs and otherrestrictions on trade in goods, for example. The increase in ASEAN trade with China hasalso led to a concern that ASEAN intra-regional trade may well decline, especially in theaftermath of the ASEAN-China FTA.

There has been slow progress to date on services, investment, non-tariff barriers, mutualrecognition and harmonisation of standards, according to Sally (2007, p. 12) who seessignificant difficulties in achieving the free movement of skilled labour and a single marketfor goods, services and capital.

At the East Asia Summit in January 2007, the Chairman’s statement welcomed‘ASEAN’s efforts towards further integration and community building’. It reiterated theSummit’s support for ASEAN’s role as ‘the driving force for economic integration in thisregion’ (ASEAN 2007a, 2007b).

While there has been a proliferation of bilateral FTAs in the region, they are all charac-terised by significant safeguard clauses that attempt to protect a large number of sectors. Parkand Kim have suggested that a proliferation of regional initiatives within and surroundingEast Asia is a relatively new phenomenon in the region, with many FTA initiatives amongand/or involving East Asian countries. Given traditional Southeast Asian preferences formultilateralism, this new phenomenon, merits further analysis (Park and Kim 2005).

Scholars have illustrated that there are significant challenges among Southeast Asiancountries in agreeing on common goals – and norms – due primarily to the heterogeneityof the region’s countries (Murray 2008). Common goals – and norms – are not at the basisof such cooperation as they are in the EU (Hidetaka 2005, Dent 2008). The need to presentobvious benefits for all participating countries presents a particular challenge. There is alsoa problem that a common agenda stemming from the policy goals of East Asia’s moredominant states may be to the detriment of their weaker, poorer neighbours. There is thus aclear divergence of interests and capabilities among states in East Asia and Southeast Asiain particular.

After the Asian financial crisis, Southeast Asian countries were obliged to re-examinetheir approach to the liberalization of their economies. Katzenstein (2000) posited that, be-fore the crisis, it was thought that state and government intervention in business and the econ-omy helped bring about national economic growth by lowering transaction costs. After thecrisis, this interventionism was judged to be impeding economic growth and volatile finan-cial markets had intersected with local political crises to make the situation worse. Reformpackages such as those of the International Monetary Fund to assist in solving the financialcrisis attempted to promote economic liberalization and bring about political change.

Considerable efforts at economic integration among ASEAN nations have not beensupported by political initiatives and do not involve a surrender of the core principle ofsovereignty. For example, in 1992 the ASEAN leaders agreed on the timetable for theachievement of an ASEAN Free Trade Area (AFTA). Tariffs were removed on the vastmajority of goods. At the ninth ASEAN summit in October 2003, it was further agreed thatincreased efforts be made to establish an economic entity with economic integration as itsobjective. This involved a number of steps, including the AFTA’s implementation and theASEAN Framework Agreement on Services (Giang 2006). Tariff reduction on specified

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products was initiated. There was a commitment to increased transparency of standards andconformity. Elements of regional integration thus came several steps closer to realisationand continue to expand, as seen in the ASEAN Scorecard of 2010. The efforts to developthe RIA aspects of the ASEAN integration project also come at a time of intensifiednegotiations with Korea, China and Japan for increased cooperation as the ASEAN PlusThree (Japan, China and South Korea).

The signing of the ASEAN Charter, in November 2007, and its subsequent ratification,constituted a renewed impetus towards economic and integration and, potentially, politicalcooperation. Article 1.5 of the ASEAN Charter aims to

create a single market and production base which is stable, prosperous, highly competitiveand economically integrated with effective facilitation for trade and investment in which thereis free flow of goods, services and investment; facilitated movement of business persons,professionals, talents and labour; and freer flow of capital.

The Charter further states that it will act in accordance with the principles of respect forthe independence, sovereignty and equality of the constituent states (Article 2). ASEAN isconferred a legal personality (Article 3) as ‘an intergovernmental organisation’. Article 20.1states that decision making remains based on consultation and consensus. A noteworthyfeature of the Charter is the idea of an ASEAN Minus X approach, where, in the implemen-tation of economic commitment, there is a formula for flexible participation (Article 21).

Andreosso (2008, p. 70) has pointed to delays in implementing an internal marketfor ASEAN, as, despite the agreement by ASEAN members to establish a single marketand an integrated production base within an AEC, serious obstacles to intra-ASEAN tradeand investment remain. For example, technical and other barriers have not been loweredalthough required by the AFTA agreement; customs procedures in ASEAN still discouragefirms from pursuing cross-border business activities; and the standardization of productstraded within ASEAN is progressing only very slowly. She sees as major impediment tointra-ASEAN trade the complexity of implementing the ASEAN rules of origin that setthe criteria for eligibility to the Common Effective Preferential Tariff (CEPT). While thereis a dispute settlement provided for in the ASEAN Charter (Articles 24–26), the obstaclesexamined by Andreosso suggest that the basis for an economic constitution are not evident,despite some commitment to them. Aw (2009) regarded the aim to achieve an AEC by 2015as having been undermined by the global economic crisis and huge economic disparitiesamong member countries.

4.2. Resolving conflicting interests: intervention policies

As we have illustrated, compensatory mechanisms are effective within the economic con-stitution of the EU. Such an experience has not been evident in ASEAN, in part becausethe need for compensation often arises when an internal market is about to be, or has been,established. The lack of adequate support to date for an effective economic constitutionwithin ASEAN has resulted in the lack of discussion of compensatory mechanisms. Rather,the need to tackle poverty reduction features in the ASEAN Charter. Further, unlike theEU, there are no intervention policies in ASEAN that offset the impact of regional marketregulation. There are no redistributive policies and there is no concept of Own Resources.

We have seen that in the case of the EU, intervention policies are aimed explicitly atresolving different national and societal interests in regional and trade policies, for example.There is a clear commitment to fairness and to the notion of a social contract and this isnot a feature, to date, of ASEAN. There is currently no discussion of a social contract

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within ASEAN. The notion of fairness in terms of cohesion policies and the principle ofredistribution of resources across the member states is not a feature of ASEAN and sothere are no means to resolve conflicting interests within ASEAN in this context. Thereis, as yet, no commitment to the principle that no member state is to be penalized bythe liberalisation of the market. This brings to the fore the challenges currently faced byASEAN – as distribution costs cannot be solved and dealt with by intergovernmentalismalone, but rather by a commitment to a constitutionally based regional entity. The conceptof a community therefore differs radically in ASEAN and the EU.

One important basis of the fairness principle for intervention procedures is based ondemocracy, and currently ASEAN has no consensus regarding democratic principles amongits member states. While in the EU there is some form of citizens’ consent for cohesionand fairness, this is not the case in ASEAN.

Yet the ASEAN Eminent Persons Group had argued the need to bridge the enormousgap between the richer and poorer countries within ASEAN – in other words a socialcontract. Their Report (ASEAN 2007a, 2007b, p. 5) proposes a special fund ‘for narrowingthe development gap’ ‘with voluntary contributions from Member States’. It is noteworthythat this is proposed as a voluntary mechanism. The Report (ASEAN 2007a, 2007b, p. 13)also states:

even as ASEAN embarks on further integration, it must be mindful of the importance of nar-rowing the development gap. Concerted efforts are being undertaken and resources mobilisedto narrow the development gap under the Initiative for ASEAN Integration (IAI). Particularattention should be given to strengthening economic linkages, ensuring infrastructure and ICTconnectivity between ASEAN Member States, as well as alleviating economic dislocation andpromoting human resources development.

Article 1.11 of the ASEAN Charter sets out the objective to enhance the well-being andlivelihood of the peoples of ASEAN by providing them with equitable access to humandevelopment, social welfare and justice.

Although the AEC ideal has a commitment to economic and political progress, con-siderable political differences among member states’ political systems remain a significantchallenge (Morada 2008, p. 41). Morada notes that there is a belief among many in ASEANthat creating an economic community should lead to more equitable development amongand within member states and that poverty reduction and social development are intrinsicto ASEAN community building. There is a perception among some civil society groupsthat this is not adequately provided for in the ASEAN Charter (Caballero-Antony 2008).Morada (2008, p. 45) notes that

The process of drafting the ASEAN Charter has demonstrated that, in the final analysis,conservative bureaucrats and diplomats in ASEAN ruled the day. They remain jealous oftraditional norms and decision making principles that follow the “least common denominator”approach in dealing with matters affecting ASEAN.

The leadership issue is crucial and fundamental to the effective implementation ofcompensation policies (Mattli 1999). In the EU bargain, Germany accepted a specificleadership role in terms of being a paymaster of the EU Budget, in close collaborationwith France and so supported the cost of the CAP. No such agreement on leadership is inevidence in the ASEAN case, although Indonesia is keen to develop ASEAN’s integration,its involvement of civil society and the need to discuss issues relating to democracy andparticipatory norms.

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Pempel (2006) points to the need for a commitment by leaders to regionalism, andsuggests that this leadership may come from individuals, countries or groups of countries.Apart from genuine concerns regarding human rights and participatory mechanisms withinASEAN, there remains a lack of an economic constitution based on rules and fairness, onshared objectives to implement an internal market and intervention policies. These are themeans for the effective establishment of an economic constitution that guarantees economicfreedom through the free exchange of goods and services, the movement of persons andcapital and the right of establishment. These fundamental rights would need to be guaranteedto all ASEAN citizens through ASEAN rules that would supersede national rules and wouldrequire a mechanism that they be enforced by institutions above the ASEAN member states.As we have seen, in the EU case, there is a limit to the discretionary power of memberstates as to the use of national policies and to discretionary powers to prevent the EU’sinstitutions from constraining individual liberties. The ASEAN regional architecture, ascurrently constructed, does not apply these characteristics, as the consensus principle andprotection of national sovereignty remain at the core of the workings of ASEAN. Attemptsto deal with the development gap among member state will no doubt continue but withoutthe regulatory mechanisms that are evident in the EU, for example.

5. Conclusion

We have illustrated that there are distinctive differences between the EU and ASEAN.The EU is characterised by requirements that are enforced by the rules of its Treaties,which interpret the internal market as a self-organising system with measures to eliminatetariff and non-tariff barriers, and that ensure competition and management of commontrade policies. This is not the case for ASEAN, despite its recent commitment to a rule-based organisation in the ASEAN Charter (Caballero-Antony 2008). The EU rules areexplicitly the competence of the EU (not the nation state), aimed at creating and improvingthe institutional framework allowing private operators to make autonomous decisions. Incontrast, the involvement of actors in the ASEAN structures remains at the state level andhas not involved a transfer or merging of competences. Autonomy remains a hallmarkof ASEAN, and intergovernmentalism a characteristic of its negotiations. Thus, the EUexperience of rules defining an institutional framework does not apply to the ASEANexperience. ASEAN has not, to date, established fundamental common economic freedomsnor common competition policies.

The ASEAN Charter is remarkable for its commitment to the conferring of a legalpersonality to ASEAN and the commitment to the effective functioning of the ASEANdecision-making structures, but little attention or detail are accorded to the role of a putativeeconomic constitution or to the resolution of conflicting interests relating to the creation ofan internal market. Unlike the EU’s Treaty of Rome, little attention is given the workings ofthe market – rather, it emphasises the role creating a legal personality and the achievementsof peace, stability, regional resilience, security in the region, for example. The Charter’sArticle 1.5, as we have seen, sets out the objective to create an internal market, althoughwithout any details.

Many scholars concur that if ASEAN is serious in its commitment to deepening itseconomic integration, some form of enforceability is required. A ‘culture of compliancewith a credible system in place to settle disputes and address issues of non-compliance’ isrequired (Caballero-Antony 2008, p. 82).

ASEAN currently holds out no possibility of any political management of compensationissues for situations of conflict of interests among member states. The absence of a common

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policy to adjust of individual economies and to distribute the advantages of the internalmarket is fundamental to understanding difficulty in ASEAN’s regional processes.

There was a fundamental rethinking of the need for increased formalisation in the wakeof the Asian financial crisis. Efforts at a form of regionalism that might be similar to Euro-pean integration, however, remain undermined by sovereignty concerns and the domesticagendas of individual member states of ASEAN. An informal, relatively unstructured, openregionalism remains a preference, combined with a desire for more strengthened RIAs inthe form of FTAs. Initiatives such as the Chiang Mai Initiative and debates on the adaptabil-ity of Economic and Monetary Union are of merit for those who believe in the importanceof RIAs as a means to enhance global trade security and, more recently, dealing with theglobal financial crisis.

There remain challenges of leadership and a lack of consensus regarding the persona ofleadership within the Southeast Asian region. While bilateral agreements remain important,regionalism is evident in ASEAN, although not founded on the integration principles ofthe EU, as we have illustrated. The specificity of the experiences of each of these regionsis evident, while at the same time both regions are in regular dialogue through the AsiaEurope Meeting (ASEM) across economic, political and socio-cultural pillars.

Although ASEAN has achieved an increased coherence of purpose, it has not achievedan internal market, due to problems of identity, leadership, considerable heterogeneity and aweak economic constitution. There is no binding form of market regulation; no commitmentto binding rules and few pay-offs, dooming ASEAN to remain a loose regional organisation,pending the full implementation of the ASEAN Charter over time. The language anddiscourse of ASEAN point to a desire for a free trade area, but with few practical meansto deepen this into a new type of regional integration unless its member states committhemselves to a contractual economic constitution.

Although the EU implements its contractual obligations and acceding states are obligedto accept them, as the EU’s acquis communautaire, ASEAN has no similar ‘acquis ASEAN’or constitutional acquis. A reluctance to accept a single state (or more) as leader also hasbeen a brake on the development of a contractual economic constitution.

The modest targets that were set by ASEAN for 2015 do not look as if they willbe achievable by then, as the ASEAN Charter is not the machinery for market delivery.We have seen that there is no effective compliance mechanism or punishment for non-compliance. In order for an internal market based on an economic constitution to beeffective in ASEAN, the elements of an economic constitution would be required – acourt-based system; compensatory mechanisms; leadership of the constitutional structure,a budget and a paymaster or several paymasters.

Factors that have contributed to the success of Europe’s integration include an economicconstitution, leadership; the support of the United States and internal willingness amongmember states to settle disputes, build bridges and create peace. Within ASEAN, thereremain disagreements regarding leadership and territorial disputes. There is considerablecultural, legal, economic and political heterogeneity, and little willingness to cooperate onissues affecting national interests and sovereignty. There is a lack of a political will to bringabout compensation policies, as we have illustrated. It remains to be seen if there will be awillingness to develop an economic constitution in ASEAN in the future.

Notes

1. These include air travel, agro-based products, automotives, e-commerce, electronics, fisheries,healthcare, rubber-based products, textiles and apparels, tourism and wood-based products.

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2. Pitsuwan notes that tariff liberalisation is very close to the full realisation of establishing ASEANFree Trade Area. Average tariff is down to 1.95% in 2008, from 4.43% in 2000. Emphasis is nowplaced on removing non-tariff barriers to trade and enhancing trade facilitation such as customs,standards and conformance, to further boost intra- and extra-ASEAN trade.

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