Regional-integration proponents argue that the global economic crisis has accelerated the decline of the USA and the rise of emerging powers, notably China. The severe contraction of export demand in the West, and the probability that it will not return to pre-crisis growth rates for some time, strengthens the argument that Asian economies should ‘rebalance’ to exploit regional sources of growth. That demands regional integration through stronger regional agreements and institutions. Not least, an Asian regional bloc, with up to half the world’s population and a third of global GDP, would be the third pole in the global economy; its collective power would transform global politics and economics.

What is achievable? Here it is important to distinguish Asian hype from Asian reality.

Economic integration is most developed in east Asia. Intra-regional trade as a share of east Asia’s total trade has increased to about 55 per cent – somewhere between EU and NAFTA levels and much higher than other developing-country regions. Intra-regional foreign direct investment (FDI) has also increased. But a big chunk of intra-regional trade and FDI, centred on ICT products, is in the form of production-sharing arrangements for export of final goods to the West. In other words, east-Asian regional integration is tightly linked to global integration. Apart from that, east Asia has highly fragmented markets in manufacturing, services and agriculture.

South Asia is the most malintegrated region in the world. Its intra-regional trade is barely above 10 per cent of its total trade; and intra-regional trade is about 5 per cent of regional GDP. India’s trade with its neighbours is under 3 per cent of its total trade.

Finally, east and south Asia are much less open to finance than they are to trade and FDI – due to highly restrictive national policies governing financial markets. Asian countries are far more connected with global financial centres in the West than they are with each other.

Now look at regional-integration initiatives. To begin with, Asia’s FTAs – 54 at the last count, with 78 in the pipeline – are ‘trade light’. They are largely limited to tariff cuts, but have barely tackled non-tariff regulatory barriers in goods, services and investment – much bigger obstacles to regional commerce than tariffs per se. And they are bedevilled by complex rules of origin requirements that blunt the effect of tariff elimination.

What about region-wide FTA initiatives? An APEC FTA initiative (FTAAP – Free Trade Area of the Asia Pacific) has gone nowhere: political and economic divisions in such a large, heterogeneous grouping are manifold and intractable.

Would regional FTAs limited to east Asia, or east plus south Asia, have more traction? To begin with, discrimination against third countries would compromise regional production networks linked to global supply chains in ICT, especially where non-trivial tariffs still exist, and restrict the expansion of global supply chains to other areas of manufacturing, services and agriculture. Moreover, huge economic gaps and enduring political differences – notably nationalist rivalries between China, Japan and South Korea, and between India and Pakistan – will stymie Asian regional integration for some time to come. Hence it is psychedelic cloud-nine politics to expect a strong, comprehensive FTA in Asia. Rather the result is likely to be a very low common denominator – another trade-light FTA that would add to an expanding noodle bowl.

Then there are east-Asian initiatives on financial and monetary cooperation: the Chiang Mai Initiative on currency swaps; the Asian Bond Fund and the Asian Bond Market Initiative; an Asian Currency Unit; an Asian Financial Stability Dialogue; and an Asian Economic Secretariat. But regional monetary and financial cooperation is embryonic and very soft. It is utopian to expect it to become much harder anytime soon. Realistically, it can only firm up gradually through modest steps such as increasing regional liquidity arrangements, improving regional economic-policy dialogue, and extending initiatives to India.

So far, regional economic integration – overwhelmingly in east Asia – has been market-led and bottom-up. It has come about through unilateral, non-discriminatory liberalisation of trade and FDI, with accompanying country-by-country competitive emulation. That is how east Asia attracted Japanese, American and other multinationals and inserted itself into global supply chains. Regional integration has not come about through top-down regional policy initiatives. The key to future regional and global integration is renewed unilateral, non-discriminatory liberalisation, this time going beyond border barriers to tackle behind-the-border regulatory barriers. That, more than anything else, would extend multinationals’ supply chains in the region, and open up regional markets for domestic producers and consumers.

Asian regional institutions can be useful at the margin. They can be ‘chat forums’ for policy dialogue and exchange of information, gradually improve mutual surveillance and transparency, promote trade facilitation and ‘best-practice’ measures, and (at best) cement unilateral liberalisation and help to prevent its reversal in difficult times. But more ambitious regional initiatives are inadvisable, indeed unachievable. That holds for regional FTAs. Better, therefore, to be pragmatic and realistic – and stick to terra firma.

Razeen Sally is director of the European Centre for International Political Economy.

An earlier version of this article appeared here at The Wall Street Journal.