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CEO Blog: Asia Can Reap the Benefits of Closer Economic Ties AND Avoid Europe's Crisis

Though battered and bruised by the banking crisis, the 17-year-old European Union is far from out. While its 500 million residents comprise just one-fourteenth of the world's population, the EU produced more than one-fourth of the global GDP in 2009. That makes the EU the world's largest economic entity. The EU also accounts for one-fifth of global imports-exports, while the euro is the second-most widely-held reserve currency in the world. The EU clearly punches above its weight.

That's the good news.

The bad news is that the EU's total GDP fell 11 percent last year, and is expected to fall another 2 percent this year, according to the IMF. Two of its members, Greece and Ireland, have had to get multi-billion-dollar bailouts, while two others, Portugal and Spain, teeter on the brink.

Meanwhile, Asia has come through relatively unscathed. The IMF projects Asia's GDP to grow 7.9 percent in 2010, and 6.7 percent in 2011.

Asia’s clean bill of health presents two major opportunities. The first is to re-ignite the drive towards closer economic cooperation that has been stalled since the late 1990s Asian Financial Crisis.

I was a panelist at the recent APEC Forum in Yokohama, Japan. It reinforced my impression that APEC remains a loose confederation. Members border the same ocean, but otherwise do not share many of the same economic interests.

In 1994, APEC set free and open trade and investments objectives for its member economies, known as the Bogor Goals. While encouraged by the great strides these economies have made toward the goals, I also agree with critics who say they are hampered by a lack of numerical targets to which nations can aspire, as well as the teeth to spur on laggards.

A more recent APEC proposal, the Free Trade Area of the Asia-Pacific (FTAAP), would create a free trade zone that would get rid of the current overlapping and conflicting free trade agreements between members.

Unfortunately, FTAAP remains in limbo, bogged down by protectionist policies, and a lack of political will among its members to overcome them.

I believe FTAAP is a positive way forward. It would boost trade and growth for everyone in the region.

Chinese shipping containers
Thierry Dosogne | Photographer's Choice | Getty Images
Chinese shipping containers

Can this type of trade alliance succeed?

I think so.

It will require peace—or at least more stability. The North Korea situationremains one obstacle to that peace, along with the Diaoyutai issue and other regional conflicts.

Some argue that these obstacles, Asia’s diverse cultures and historical rivalries mean that peace and FTAAP are impossible. But these issues are no larger than the ancient rivalries in Europe, where two world wars started. Trade barriers are simply nationalistic band-aids masquerading as economic policy. Asia’s leaders need to realize the benefits of sticking together for common good, through thick and thin..

Asia also has the opportunity to study the EU's triumphs and mistakes. It's clear now that the EU failed to roll out sufficiently-strict financial transparency rules for its member nations. Metrics such as federal deficit-to-GDP ratios based on reliable and recent data could have thrown up red flags in Greece much earlier. The EU's Central Bank, which manages the euro and monetary policy, also appears to lack the enforcement power to rein in countries that stray.

"A strengthened economic body can flourish in Asia provided both sides embrace a Kong Rong-like spirit of cooperation."" -CEO, Sybase, John Chen

Together, these could have gone a long way towards preventing the current climate of recriminations and mistrust between EU members. This was epitomized by the statement of the finance minister of Slovakia (which voted against assisting Greece), who said, "I do not consider this as solidarity if it is solidarity between poor and rich, of the responsible with the irresponsible, or taxpayers with bank owners and managers."

Instead, can a spirit of cooperation be created in Asia? I'm reminded of the ancient Chinese parable about the scholar, Kong Rong. As youngest in his family, Kong Rong was offered the first choice of pears by his older siblings. Kong Rong, however, said that as the smallest son, he would choose the smallest pear.

The only way FTAAP or another tighter economic alliance to succeed is for Asia's stronger economies to take on the role of beneficent older brothers – supporting and guiding, not controlling, their smaller siblings. They in return must temper their desire to grow in risky, unrestrained ways. A strengthened economic body can flourish in Asia provided both sides embrace a Kong Rong-like spirit of cooperation. Only then, will everyone be able to reap the fruits of a larger harvest.

John Chen has served as chief executive officer of Sybase, an SAP Company , since 1998. Forbes magazine named Mr. Chen one of the Top 25 Notable Chinese-Americans in Business. He was named 2007 Ernst & Young Entrepreneur of the Year in Northern California.