De Facto and De Jure Regional Economic Integration in East Asia : How do They Interact

A salient feature of the East Asian region is the persistent discrepancy between the progress in de facto and de jure economic integration. East Asia has long been said to be the champion of loose regional economic integration, with deepening intra-regional trade and investment linkages in the absence of any formal cooperative scheme. However, an oft-heard claim is that East Asia has been shifting recently towards an institution-based form of regional economic cooperation, primarily as a result of the 1997-98 financial crisis. Next to post-crisis financial cooperative schemes under the ASEAN 3, the surge of Regional Trade Agreements (RTAs) involving East Asian countries is thought by some to further substantiate this claim. The objective of the paper is twofold; first, to assess the validity of the aforementioned claim; and second, to examine the links between de facto and de jure economic integration in East Asia compared to other regions of the world. In the process, the sequencing between trade and monetary cooperation is also addressed. The paper starts by providing a candid assessment of the current state of play of economic cooperation in East Asia (de jure integration), both from the trade and the financial/monetary perspective, and highlights the limitations of the formal regional integration movement in East Asia to date. As a next step, it explores the changing nature of intra-regional trade and investment linkages, contrasts it to the situation in other parts of the world such as Europe and examines to what extent this new form of interdependence may be instrumental in making formal regional economic schemes more attractive. A major conclusion is that de facto trade integration may not automatically lead to deeper regional trade cooperation de jure and that its impact is likely to be stronger on monetary cooperation projects