Regional Aid and Regional Integration: East Asia’s Lessons from EU Structural Funds Jisun Yi Ewha Womans University, Seoul, Korea Institute for Development and Human Security, Seoul, Korea

Research Agenda Topic: Different Use of Regional Aid in European and Asian Integration Process Hypothesis: EU’s Structural Funds (of Regional Policy) represents a unprecedented ‘coordination mechanisms’ that are geared towards economic development and regional integration within community. International trends Significant expansion in aid for regional integration and cohesion within European and East Asian community Beyond ‘Aid and Development’ nexus discussions Expanded role of aid e.g. poverty reduction, economic growth New approach: Regional cooperation, integration -> economic growth and poverty reduction Aid Regional Integration Regional Integration idea institution interest idea institution interest

Framework and Methodology “Close coordinating mechanisms” of SF to be examined [Targeting] Coordination between aid and integration (specific development for regional cooperation and physical connectivity) [Development Strategy] between aid and trade, FDI (investment for more private investment) cf) tied aid (part of package) [Aid Governance (allocation)] multi-level governance: negotiations and feedback loop among supranational, national and sub-national institutions Methodology and Aim Qualitative methodology, comparative study of cases of EU’s SF and Asian counterparts To draw lessons from an advanced form of regional aid (EU’s Structural Funds) for other emerging regional aid and ODA from institutional, development and domestic politics perspectives

Evolution of the Fund at times of EU enlargement Part 1 EU enlargement Dev’t of CP/SF More cohesive, equitable EU

Introduction to EU’s Structural Funds Regional policy Treaty (Rome~Lisbon) “to promote economic and social cohesion by reducing disparities between the regions” Toward a higher level of integration: monetary (single market, monetary union) and political integration One third of the EU budget €347 billion over 7 years “Redistribution” and “investment for investment” Beneficiary: the least developed, worst-performing regions and nations (1/4: below 75% of EU average; 13 states: below 90%)

Cohesion Policy: Disparity Harms Integration 15 traditional EU member VS. 10 New members (per capita income); $7,000 ~ $78000 <  125 GDP per head as a % of the community average Differences in development in the EU-27

EU 27 Member States GDP per capita in PPS in 2006 EU 27= 100 (Source: Eurostat structural indicators)

Structural Funds Allocation ( ) Unit: EUR million, current prices (Source: Europa official website)

Recent Challenges to SF EU enlargement in 2004, 2007 Income disparity within community, increased e.g. EU GDP p.c. on average 8 CEEC: Formerly planned economies Strong presence of state in market and national boundaries (regulation, corruption, centralization) Considerable gaps in infra and capital endowments Serves as catalyst to evolve mechanisms for economic, financial, political integration within the EU

1. Targeting “Aid that directly addresses regional cooperation and integration” Priority ‘Development at lagging regions’ < ‘Regional integration and cooperation (intra-regional connectivity)’ Major Theme: Connectivity and Haman Capitals ‘transport’ – trade, FDI, labor movement-related infra.

2. Development Strategy Western Development Experience & Integration Rationale Free trade: income convergence among R & P (cf. Dependency Theory) Theory of MNEs and FDI SF affects allocation of FDI (Breuss et al 2010) (at the expense of FDI to Northwestern Europe, more FDI to new destinations) Comparison with ‘aid for trade’ (overseas development assistance) - functions, similar - Volume, under the ‘Subsidiary’ principle

3. Multi-level Governance EC Top decision making MS Policy making & implementation Local Implement- ation EC MS Local -Public bodies -Businesses including SMEs -Associations -Voluntary group Analogy: Donor-Recipient Relationship / Agent-Principal Model Coordination System among multi-level governance

Aid Allocation Politics EC Two-level bargaining process (Bodenstein & Kemmerling 2008) Official allocation criteria + “alpha” ‘Convergence (Goal 1)’ EU’s average GDP p.c. 75% ‘Competitiveness (Goal 2)’ EU’s average unemployment rates (no other specific conditions) More room for politics to come in More aid to countries that have strong electoral competitions (competitions among member states) Reflective of local, regional actors (electorates) MS R R R R RR R R R R R R R

Effectiveness and limitation of SF Empirical evidence SF – Regional Economic growth (literature list) SF – Efficient Governance – Regional Economic growth SF – Disparity reduction – Regional Integration Implications and limitation of SF Inconclusive results of SF effectiveness Case by case (spatial divergence) Evolution of SF with reforms (before multi-year plans) overtime: “positive” progress

ASEAN Plus Three & Regional Aid Part 2

Cooperation Among East Asia and ASEAN Different Nature & Process of Asian Integration Double track (ASEAN and Northeast) 60’s~80’s -> 1997 financial crisis -> financial, monetary integration among ASEAN Plus Three (FTAs: intra-region trade boosters) FDI, financial integration indicators on the rise (ADB 2006) Lower levels of integration (huge limits to labor mobility) Regional Aid: East Asian advanced economies to ASEAN states Major donors: Japan (traditional), China (lack of data), Korea (emerging), ADB (integration-focused) Emergence of integration-concerned aid Addressing economic cooperation and South-South cooperation in aid policy as taking global, regional responsibility (public goods) Newly joined ASEAN countries: Cambodia, Laos, Myanmar, Vietnam

Major West and East Donors to ASEAN nations Percent JapanKoreaChinaN. AmericaEU-DAC (Source: OECD database)

Asian Counterparts Major themes of Regional Aid Trade-related infrastructure (e.g. transport, storage, energy, etc.) Technical Assistance (Soft Power): development experience to developing ASEAN regions Japan ODA to ASEAN Before the Cold War, lack of philosophy; export promotion After; METI < MFA (Addressing regional, global responsibility) Grants ratio, volume increased Priority: ‘Political stability’ in ASEAN Human security approach ADB aid for RCP Integration in Asia and the Pacific RCP in 1994 Major Pillar and theme in RCP Cross-border infra. & related Software e.g. Transport and ICT (33.4%), multi-s. (13.5%) (Source: “Regional Cooperation and Integration Strategy (2006)”)

EU and EA Integration: Implications and conclusion Part 3

Comparison: Different Use of Regional Aid of European and East Asian community EU Structural FundsEast Asian ODA ADB aid for RCP Integration Targeting ImportanceLack of philosophy Development Strategy Intergovernmental grantsJapan, China, Korea (Loans) Aid Governance Multi-level governance Conflict and cooperation in politics “Interplay of multi-level governance -> better feedback -> reform agenda, ‘refocusing, smart’ aid” *Donor-recipient relationship “One way” from donor to beneficiary (cf. ownership, the Paris Declaration) *Domestic politics in donor countries in aid allocation State interest vs. others (transparency of aid) Limitation of discourse: integration level in discrepancy, source of regional aid (co- financing), etc.

Further Evolution of Regional Aid in EA? Aid for regional development and integration Possible determinants of evolution Emergence of multi-level governance, effective mechanisms in a future, more integrated Asia Obstacle: Sovereignty of state and intervention of supranational institution (development aid policy competence competitions) Application of a new strategic approach of the EU