INTRODUCTION

The institutional structure supporting the ASEAN Economic Community (AEC) project remains limited. ASEAN member states are well known for resisting any form of centralized authority to manage and complete the integration process. This chapter explores how best to design regional institutions to enhance AEC implementation.

THE POLITICAL ECONOMY OF ASEAN INTEGRATION: UNDERSTANDING ASEAN's PREFERENCE FOR FLEXIBILITY

Three features characterize ASEAN's approach to regional economic liberalization and integration, seen in both the AFTA project initiated in 1992 and the current AEC project. First, ASEAN governments have generally been forthcoming in initiating ambitious plans and programs on economic cooperation and liberalization.

Second, despite ambitious commitments, implementation of these commitments has faced problems, with member governments sometimes failing to meet set targets and/or ignoring them, asking for revisions to original targets and/or seeking exemptions from them. Third, ASEAN governments have always preferred relative limited institutional structures that in the end are unable to impose stronger discipline on member governments to adhere to the commitments, action plans and timelines to which they themselves earlier agreed.

The interplay between external com-petitive pressures and domestic factors in shaping the evolution of AFTA and the AEC provides valuable lessons for this chapter. For instance, both AFTA and the AEC were initiated by ASEAN governments, which saw in these two projects the chance to secure national economic growth by enhancing the competitiveness of the ASEAN region as a whole, particularly as a site for investment.

However, these same governments were also constrained in how far and how fast they could commit to regional integration, because they had to take into account domestic socio-economic and socio-political priorities, including domestic business demands for exemptions from regional liberalization schedules.

INSTITUTIONS FOR INTEGRATION: THEORETICAL INSIGHTS AND THE ASEAN EXPERIENCE

Institutions can very simply be defined as governance arrangements comprising sets of norms, rules, procedures, and organizational structures that aid collective action. Depend-ing on their design, institutions can aid implementation of integration commitments. This can occur through ensuring that clearly defined commitments are agreed upon and effectively monitored, so that instances of noncompliance can be addressed while the propensity for non-compliance reduced either through reputational effects or material costs. The report of ADB's flagship study on Institutions for Regional Integration identifies decision-making rules and a set of various “commitment devices” to be especially helpful aid to implementation.