ERIA: Centrality, Odd men out, and quest for regional “research” leadership.

Previously, Malcolm Cook at the Lowy Interpreter and I briefly exchanged notes on the Economic Research Institute for ASEAN and East Asia (ERIA) and its meaning in the broader East Asian context. I should like to continue those thoughts here, arguing that the story of ERIA neatly encapsulates the story of East Asian regionalism. I will show that ERIA’s formation is not a sign of strength of East Asian regionalism but another yet manifestation of the contest for centrality in East Asia between China and Japan.

The order of the title is no accident. I tend to believe that without a clear central leader, it is impossible to define regional membership (let alone borderline cases like odd men in). Indeed, contestation over the borders of the region (such as in East Asia today) is a good indication that the position of central leader is itself contested (chiefly between China and Japan). Under these conditions, any field even the esoteric (almost irrelevantly so) field of semi-formal research into economic regionalism acquires a political connotation.

So, what is ERIA? From a technocratic point of view, the ERIA is a research body designed to help with policy development and coordination in East Asia. But politically, it represents a Japanese leadership bid in response to China’s growing influence in the field of regionalism research. Specifically, Japan’s concerns were raised by China bid to house the Network of East Asia Thinktanks (NEAT) – an idea based on the recommendation of the East Asian Study Group (the first annual conference of which was held in China in 2003).

In response, Japanese policy-makers started to propose alternative groups to carry out research. Japan first pushed for the Asian Development Bank to take on this role, but meeting US resistance (and no doubt limited, if any, Chinese support at the ADB’s Board of Executives), shifted its attention to the ASEAN+3 research groups where Japanese research institutes were doing well. However, neither provided the leadership dividends Japan was after – the only option then was to start up its own “independent” research institution. Enter ERIA stage right.

Building on then Economy, Trade and Industry Minister Nikai’s proposal for a 16 party FTA, Japan’s former PM Abe called for the creation of ERIA at the 2007 ASEAN+3. ERIA was to be a research clearing house and policy coordination facility – a sort of OECD for Asia, minus the Charter and all the western legalistic trapping. At the 3rd East Asian Summit in 2008, the ERIA idea was approved unanimously – and debate shifted on where to base the secretariat.

Not withstanding the fact that Japan was to provide the money (and most of the brains) for this enterprise, ASEAN insisted on deciding amongst itself where to base the ERIA. The intense diplomacy among ASEAN nations for the privilege of housing the ERIA only subsided when the decision was made to temporary house in the ASEAN secretariat in Jarkarta, Indonesia. Thus while officially the ERIA is only temporary in Jarkarta, the green light has gone ahead to build it its own building, something of a fait accompli for Indonesia although unlikely to garner the kind of trust ERIA will require to do its work.

I am inclined to believe that this outcome reflects not so much a weakness in ASEAN as in Northeast Asia. If ERIA was to be an OECD for Asia, then it ought to be based in a Paris-equivalent city in Asia (i.e. the capitals of either China or Japan), which Jakarta (despite being very nice) simply is not. If, on the other hand, the goal of the ERIA was to boost Japan’s presence in southeast, this outcome makes more sense (Japan would likely lose political points for insisting the ERIA be based in Tokyo, better to pawn it out to ASEAN).

In fact, Japan’s influence on ERIA was clear from the outset. Firstly, Japan offered to fund the organization through its first ten years to the tune of 10 billion yen over ten years. Secondly, ERIA was established with institutional links to the Japanese External Trade Research Organisation (JETRO). The Chairman of JETRO Watanabe Osamu has carefully played down any Japanese influence within ERIA, even as it negotiated with ASEAN members were to establish the secretariat.

Unsurprisingly, the ERIA came to support the METI’s and JETRO’s position on the merits of the 16 party Free Trade Area, (known in Japan as Comprehensive Economic Partnership East Asia, CEPEA). No surprise either that Australia, New Zealand and India have stepped forward to pitch additional monies and more importantly legitimacy to the organization – often visibly and vocally supporting ERIA as something of a hat tip to Japan. These countries would be the major beneficiary of such a trade area, and perhaps just as crucially, are keen to shed their status as “odd men” and gain acceptance as a true regional member – something Japan just might be able to provide.

P.S. One of the effects of ERIA foundation was to put pressure of the NEAT process. In fact, the NEAT itself was hardly a success. NEAT is not an international institution of the same level as the ERIA, it does not possess its own headquarters, research staff or budget and is more or less an alliance of academics with good political connections. Indeed, the 2007 report entitled “Future Direction of NEAT” prepared by Thailand notes, “NEAT activities do not governmental support and are now facing possible competition from other newly established mechanisms like Economic Research Institute for ASEAN and East Asia (ERIA).” Additionally, the Japanese CEAC seems to have taken over running the NEAT, and the whole agenda there is shifting. It seems likely therefore that ERIA will win out as the lead research body in East Asian regionalism.

Currency Diplomacy, now and then.

Time is like a river, and history repeats. Japan’s ‘novel’ idea of a currency union for Asia, is modelled partly on the experience of the Euro. But in fact a closer match for Asia’s current political-economy might well be Europe of 19th Century, rather than the 20th. Even then, in 1865, the idea of common regional currency was being debated in Europe, and its outcome is instructive for today’s currency politics in Asia.

In mid-1800s, Napoleon III of France launched a project to tie other European currencies to the Franc in what was called the Latin Monetary Union (LMU). At this time, France fixed the Franc to contain a certain quantity of silver (4.5 grams) and proposed that other currencies adopt its standard. Doing so, the French argued, would facilitate international trade by removing risks and transaction costs associated with exchanging one currency for another, or indeed due to movements within the bimetallic exchange rate. Harmonising the currencies of Europe was rational, scientific (metric!) and civilised argued the French. Notwithstanding the limits of the eventual agreement, (private persons/ Banks were not obliged to accept foreign minted but LMU-consistent coinage), the LMU did gather significant support – indeed lasting until the 1920s.

The French were particularly keen for the British to sign onto the scheme. And indeed, although Britain was on the gold standard rather than bimetallism, a minimal adjustment of the quantity of gold within the pound and a (much needed) technical reform (decimalising the currency) and the British could have joined the LMU, if they had wanted to, relatively easily. But here politics got in the way of economics. Britain had little love or trust for the revolutionary French, whatever the potential benefits. In fact, the British believed the LMU was a rouse, a part of the French master strategy to secure its economic hegemony in Europe and to wrestle away from London its status as a financial centre. With Britain refusing to sign on, the LMU was confined to France’s poorer, southern neighbours for whom the marginal cost of aligning their currencies to the French mint’s standards was perceived worthwhile in order to “facilitate international trade, import a better internal currency, acquire monetary credibility and gain access to international [French] financial markets”, see Einaudi.

Now, from Napoleon III’s Paris, we leap forward in time and space, roughly 150 years and more precisely 9738km, to Tokyo in the present. Here we find that, over the years since the Asian Financial Crisis, some within Japan have argued for a regional exchange rate mechanism for Asia.

While not identical to the LMU, the diplomacy surrounding the Asian Monetary Union (AMU) as it might be called does share some similar features. In terms of style, Japan’s Ministry of Finance has argued that it is rational for the nations of Asia to adopt a common currency, and a veritable “.pdf” tidal wave of scientific/economic research has been presented to support this vision - much the same way France postured in the mid-1800s minus the modern software. In terms of membership, like the LMU, the most receptive audience is the smaller, poorer nations to the south – in this case ASEAN states rather than Belgium et al.[1] And like the LMU, at least one major regional power is opposed to the scheme. China.

China has little love or trust for the Japanese, regardless of the possible benefits of a common Asian coin. Indeed, China has dismissed some of the proposed weightings for a future Pan-Asian currency which have been raised in various East Asian multilateral fora. This is because, in the first instance, China believes that the whole scheme is a rouse designed to ensure Japan’s economic hegemony and project its position as a financial centre for Asia; and, in the second instance, that as a matter of national pride the Yuan ought to be the most important currency in any “designer” Asian money. Taking its cue from Japan, China has starting arguing that others, including the ASEAN states should place greater weight on the Chinese Renminbi (RMB). Indeed, already smaller states close to the border of China are using the RMB in settling their international (and indeed some internal) trade. Of course, these are the same target states for Japan’s ‘scientific’ common currency proposals.

Of course, Japan is not France, China is not the UK and the AMU proposal is not the LMU. But if a lesson can be drawn from history it is that without a level of trust and cooperation among the major powers of the region, currency coordination efforts are doomed to become a competitive and futile exercise. Much like France of the 19th Century, Japan has not presented a unified vision. Moreover, Japan has copied some of France’s mistakes, linking membership in the proposed AMU to the political alignment of prospective member countries.[2] It is no surprise then that the plan is viewed suspiciously by Beijing. As Balassa suggests, if Japan and China are not even able to conclude a FTA between themselves, then cooperation in the creation of a regional currency is beyond them.[3]


[1] Italy, Switzerland, Spain, Greece, Romania, Austria-Hungary, Bulgaria, Venezuela, Serbia, Montenegro, San Marino and later the Papal States, although the Papal States were later thrown out due to the practice of debasing their coins.
[2] Smaller German not yet part of Bismark’s second Reich looked to the LMU as a way of gaining French support for the independence. Taiwan and Hong Kong are playing similar games, as are countries such as Laos in the Mekong Delta.
[3] Bela Balassa, The Theory of Economic Integration (Homewood: Irwin, 1961).