Is the ASEAN Free Trade Area a Second Best Option?

This paper evaluates the ASEAN Free Trade Area (AFTA) which has been accepted as an ASEAN endeavour to be achieved by 2008 in the Singapore Summit in 1992. Noting the new circumstances and environment which have prompted a more proactive strategy of economic integration, the paper first surveys empirical studies on the economic impact of complete trade liberalisation. The consensus is that AFTA would not have a substantial impact in increasing intra-ASEAN trade. This suggests that AFTA, like previous ASEAN efforts at economic cooperation, seems more a political than economic effort. The inherent lack of complementarity in trade remains though the ASEAN countries' industrial structures have become more competitive and complementary. The paper however concludes that AFTA would still be useful as a demonstration of ASEAN solidarity and commitment especially if supplemented by other measures such as more deregulation and cross-country investment and other exchanges of factors like technology and human resource development.     

Regional Trade Agreements in East Asia: Will They Be Sustainable?*

By assessing the sustainability of regional trade agreements (RTAs) for East Asia, we quantitatively evaluate the likely impact of proposed East Asian RTA strategies on the East Asian economies and the world economy with respect to consumption, production, volume of trade and terms of trade effects by applying a multi‐country and multi‐sector computable general equilibrium model. These strategies include: (i) the ASEAN Free Trade Area (AFTA: a being‐left‐alone strategy); (ii) an ASEAN Hub RTA (a hub‐and‐spoke type of overlapping RTA strategy); (iii) the AFTA versus a China–Japan–Korea RTA (a duplicating or competing RTA strategy); and (iv) an ASEAN+3 RTA (an expansionary RTA strategy). We find that an expansionary ASEAN+3 RTA could be a sustainable policy option because the members’ gains would be significantly positive, with more equitably distributed gains between members than when using other strategies. The effect on world welfare would also be positive and the negative effect on nonmembers would not be very strong. More interestingly, if the East Asian countries cooperate with Pacific Basin countries to form an APEC‐level RTA, such as a free trade area of the Asia‐Pacific, the extension of the regional trade bloc might be considered a more desirable policy option than the proposed East Asian RTAs for East Asian economies, even though countries excluded from the free trade area of the Asia Pacific are worse off.     

The impact of AFTA on intra-AFTA trade

ASEAN countries have liberalised intra-ASEAN trade over the last 20 years by establishing the ASEAN Free Trade Area (AFTA). This paper aims to examine the impact of trade liberalisation under AFTA on intra-ASEAN trade. By applying a gravity model, we find positive and significant trade creation effects from the tariff elimination for a wide range of products. In addition, the analysis reveals that the elasticity of tariff reduction on imports tends to be much larger than that on exports. Trade creation effects for the new ASEAN members are relatively small compared to those for the old members. Our results show that AFTA has been successful in promoting intra-AFTA trade, while we argue that further expansion may be achieved by increasing the use of AFTA and by reducing/removing non-tariff measures (NTMs) through such ways as improving customs procedures and harmonizing/mutually recognizing product standards.     

The Rise of China: Prospects of Regional Trade Policy

China now engages in multilateral trade liberalization as a new member of the WTO. Concurrently, the number of regional trade agreements is increasing worldwide. China and its trading partners would benefit from increased regional liberalization. Using a gravity equation for 23 Asia-Pacific countries between 1992 and 2000, we show that ASEAN and APEC currently have small effects on Asia-Pacific exports, which are mainly influenced by growth, trade barriers, and common language. However, we find that China’s participation in regional agreements has large export potentials, not only with respect to ASEAN, but also in a broad agreement including South and East Asian countries. JEL no. F15, F17     

The ASEAN–Korea Trade In Services (AKTIS) Agreement: Its Impact on Indonesia and Other ASEAN Countries

To strengthen trade in services between ASEAN and Korea, in 2009 both sides signed and implemented the ASEAN–Korea Trade in Services (AKTIS) agreement. This article is the first to assess the trade implications of this agreement for Indonesia and other ASEAN countries. Despite the increasing volume of ASEAN–Korea trade in services since 2009, it is hard to say whether AKTIS was the only factor behind this encouraging growth. The agreement’s potential trade impact is, however, quite substantial. Given the importance of enhancing further trade in services between the ASEAN countries and Korea, we propose a number of specific liberalisation measures that Indonesia and other ASEAN countries could take to further strengthen such trade with their Asian neighbour.     

THE ASEAN–CHINA FREE TRADE AGREEMENT: POLITICAL ECONOMY IN INDONESIA

The ASEAN–China Free Trade Agreement has been the most consequential trade agreement for ASEAN in the past decade. In this article, I use partial equilibrium modelling to estimate the direct impacts of the agreement on Indonesia and China, and from these estimates draw political economy implications for Indonesia. Although the agreement has contributed to a modest trade surplus for Indonesia overall, it has led to a larger bilateral deficit with China. In addition, the shifts to surplus for Indonesia have mostly been in resource-based sectors, while the shifts to deficit have occurred in many manufacturing sectors that the government would like to see grow. I argue that pushback against the agreement has contributed to a resurgence of non-tariff trade barriers in the country, although other political economy forces also have been at work. The agreement ultimately provides a cautionary tale: cutting regional import tariffs can lead to pressures for more complex and less transparent trade policies.     

The transition of postwar Asia-Pacific trade relations

The purpose of this paper is to examine the feature and the transition of trade relations in the Asia-Pacific region during the post-World War II period. The paper employs the gravity model with some regional dummy variables to estimate trade flows among 80 economies through temporal cross-section data analysis, for every five-year-term from 1960 to 1995. Its main findings are the following: First, ASEAN has had no effect of its own on promoting trade among its member countries. Second, the volume of trade among EAEC has been at a high level compared with the hypothetical trade level since 1960. Third, the amount of trade between EAEC economies and other APEC countries has been growing throughout the postwar period. Fourth, there has been close trade relations among APEC economies plus some other Asian countries.     

AFTA and the Asian Crisis: Help or Hindrance to ASEAN Intra‐Regional Trade?

Using a modified gravity equation, this paper examines ASEAN intra- and extra-regional bias in bilateral trade flows and how these relationships have altered over time. We pay particular attention to the periods before and after the signing of AFTA as well as the crucial years prior to and following the Asian crisis. Given the 'openness' of ASEAN countries we consider not only intra-ASEAN trade but also the effect of AFTA on non-members. We find that trade flows were not significantly affected in the years immediately following the signing of the AFTA agreement and also that the traditional stance of ASEAN countries to outward-oriented economic activity has not been significantly damaged but rather stimulated by the AFTA process and/or the Asian economic crisis. We do find, however, that that one effect of the Asian economic crisis was to generate a stronger desire to source imports from within the region.     

The ASEAN Free Trade Area: Implications for Indonesia's Imports

The Singapore Declaration of 1992, announcing the establishment of an ASEAN Free Trade Area (AFTA), effectively brings down tariff levels on intra-ASEAN trade to 0–5% by the year 2008. This paper estimates the changes in Inonesia's imports that will result from trade creation generated by AFTA. Our results show that Indonesia's imports from other ASEAN partners will increase by 6%, based on 1990 figures. This is far greater than the estimated effects of the existing PTA scheme. However, these results are upper- bound estimates and include only static changes.     

The Dynamics of Intra-industry Trade in ASEAN*

The decision to establish the ASEAN Free Trade Area (AFTA) by the year 2008 has resulted in producers in all ASEAN countries except Singapore raising concerns relating to potential loss of market share and adjustment pressures. Underlying these concerns is the view that the expected growth in intra-ASEAN trade will be dominated by inter-industry or net trade (NT) rather than intra-industry trade (IIT). If most of the expected growth in trade is intra-industry, however, then the short-run resource re-allocation costs are likely to be lower. In this study, we employ a new methodology to analyse the dynamics of IIT in ASEAN. We overcome problems associated with using movements in the value of the Grubel-Lloyd (GL) index by deriving a formula that decomposes the growth in trade into the contributions of growth in IIT and NT. Our results suggest that the role of IIT in trade growth has been increasing in importance, and thus much of the recent concern that threatens the viability of AFTA may be misplaced.     

Clothes without an Emperor: Analysis of the preferential tariffs in ASEAN

This paper examines the current state of intra-ASEAN trade under the preferential regime of the AFTA. It partly addresses some data problems and employs a gravity model to arrive at alternative ways of gauging the importance of preferences in the absence of data on the actual utilisation of AFTA preferential tariffs. Our results show that although the range of products where AFTA might have an influence is limited, preferences seem to matter when the differential margin between the MFN and preferential tariff rates reaches a critical amount, allowing regional exporters to cover the costs of requesting preferences. However, at very high differential margins, the significance of AFTA preferences seems to wane. This indicates either the presence of non-tariff measures which prevent traders from exploiting the huge tariff discounts offered by the AFTA, and or, the propensity of ASEAN to extend high preferences on products where little or no intra-ASEAN trade takes place.     

Regional trade liberalisation: a theoretical review of dynamic time‐path and stability issues

In recent years, the use of regional trade liberalisation arrangements (RTAs) has proliferated, while multilateral negotiations under the WTO have proceeded slowly, resulting in a debate over the roles of regional and multilateral liberalisation. This paper reviews the key theoretical contributions in the debate over RTAs, especially the recently developed themes addressing dynamic time‐path and stability issues. However, due to the variety of motivations for RTA member countries to expand trading blocs and for non‐members to seek entry, research has found few general conditions under which the formation of RTAs can become the ‘stepping stone’ or ‘stumbling block’ towards global free trade.     

Constructing a global architecture with an American blueprint: The ambivalent U.S. attitude toward Asian regional cooperation

In step with the global trend toward regionalism, there has been significant progress in the development of a regional institutional framework in Asia, although perhaps to a lesser degree than other parts of the world. This is evidenced by the establishment over the past decade of APEC, ASEAN Regional Forum, and other multilateral attempts to address specific security issues. The attitude of the United States toward the development of such institutions for regional cooperation has been quite ambivalent and its approach might be described as ad hoc, utilitarian or instrumental. This paper examines the rhetoric, politics, and policy of America's seemingly ambiguous and inconsistent approach to Asian regional cooperation in an attempt to illustrate the factors that shape U.S. policy toward such efforts.     

Do trade agreements increase Vietnam's exports to RCEP markets?

The paper reviews recent developments in trade relations between Vietnam and members of the Regional Comprehensive Economic Partnership (RCEP) agreement, and analyses the impacts on Vietnam's exports of tariff reductions in RCEP trading partners. The margin of tariff preferences is adopted as a proxy for the degree of trade liberalisation and a gravity model is used to assess the impacts of the tariff preferences under the AFTA and ASEAN+1 FTAs on Vietnam's major exports. The results show that the effects of tariff preferences differ between the types of preferences and products. The FTA tariff preferences do not exert a stimulating effect on the export of agricultural products but they have positive effects on several manufacturing exports such as garments and footwear.     

Book Reviews

Book reviewed in this articles:
Indonesia Assessment 1995: development in Eastern Indonesia Colin Barlow and Joan Hardjono (eds)
Transnational Corporations and the International Trade in Primary Commodities
Malay Farmers Respond Akimi Fujimoto
The Indonesian Economy Since 1966: Southeast Asia's emerging giant Hal Hill
Innovation in East Asia: the challenge to Japan Michael Hobday
Pacific Co-operation: building economic and security regimes in the Asia-Pacific region Andrew Mack and John Ravenhill (eds)
Labour Migration in Asia ASEAN Economic Bulletin, Special Focus, Volume 12(2) Philip L. Martin, Andrew Mason and Ching-lung Tsay (eds)
Catching Up with Asia's Tigers: Philippine trade and industrial policies Erlinda M. Medalla, Gwendolyn R. Tescon, Romeo M. Bautista, John H. Power
Survey of Impediments to Trade and Investment in the APEC region: a report by the Pacific Economic Cooperation Council for APEC
The Singapore Economy Gavin Peebles and Peter Wilson
Employment-Driven Industrial Relations Regimes: the Singapore experience Chew Soon Beng and Rosalind Chew
Nobel Economists: lives and contributions K. Puttaswamaiah
Financial Reform in China On Kit Tam (ed.)
AFTA in the Changing International Economy Joseph L. H. Tan (ed.)
Trading Partners: Australia and Asia 1790–1993 Sandra Tweedie
Fiscal Management and Economic Reform in the People's Republic of China Christine P. W. Wong, Christopher Heady, and Wing T. Woo
Financial Sector Development in Asia Shahid N. Zahid (ed.)     

Regional integration in Asia and its effects on the EU and North America

Consequences of free-trade agreements (FTAs) among the ASEAN+3 and ASEAN+6 countries are explored using a dynamic computable general equilibrium (CGE) model. Quantitative assessments of intra- and extra-regional effects on welfare, trade and output are offered. When both trade facilitation and endogenously determined productivity are included in the FTA scenarios, Singapore, other ASEAN countries and China would be able to realize relatively large welfare gains, while the welfare effects on the EU and North America are negligible. The trade and output effects on the latter two regions are also relatively small, with the notable exception of crops, other than rice, in North America.     

Services Trade Liberalisation Strategies for APEC Member Economies

A tribute to a member of our team
The work on measuring restrictions on trade in services would not have been possible without Kaleeswaran Kalirajan. KK, as he was known, was an extremely talented and energetic econometrician who worked tirelessly to develop new methodologies to measure the price and cost effects of restrictions on trade in services. KK died unexpectedly in 2003. He, and his pioneering contribution to this work, will not be forgotten.
APEC member economies are moving forward with liberalising their services markets. They have agreed to free and open trade and investment by 2020. In achieving this goal, APEC member economies can benefit greatly from understanding the effects of removing certain types of restrictions. This article brings together, for the first time, comprehensive measures of restrictions on trade in services and their liberalisation effects. APEC member economies can use these measures and analysis to devise strategies to pursue further services trade liberalisation.     

The ASEAN Free Trade Area: the search for a common prosperity

During the 1992 ASEAN Summit Meeting, a historic decision was made to create an ASEAN Free Trade area over the next fifteen years. This was a milestone in economic co-operation within ASEAN. Global political and economic developments as well as factors internal to ASEAN made this decision possible. The task of expeditious implementation of AFTA poses major challenges, but AFTA itself augurs well for regional competitiveness.     

Impact of East Asia's Growth Interruption and Policy Responses: The Case of Indonesia

Assessments to date of the consequences of implementing the Uruguay Round of multilateral trade negotiations have assumed medium-term rates of economic growth in East Asia that now seem unsustainable. This paper compares an earlier assessment with a new set of estimates involving an interruption to East Asian economic growth in the late 1990s, using the global, economy-wide GTAP model. Attention focuses on results for Indonesia, the worst-affected country in the region. An important consequence of the crisis is that Indonesia is likely to become more agrarian for a time than it otherwise would have been. The estimated benefits to Indonesia from embracing further unilateral reform, as a way of catching up, are contrasted with the alternative strategy of reneging on Uruguay Round commitments to liberalize trade.     

Changes in services trade barriers in banking and their impact: the case of the ASEAN+3

Although there has been extensive research on the ASEAN+3 countries, which reveals a synchronisation of economic policies, including exchange rate management policies, research on the regional pattern of trade policies in the banking sector is limited. We evaluate the trade barriers in banking and their evolution, using data from three sequential surveys conducted by the World Bank and surveys by other international organisations. We find that the country dispersions in trade‐restricting policies are stable over time. Moreover, we find no evidence of moves in the direction of liberalisation in the sector. The economic modelling undertaken provides an indication of the real income gains and the cost increases of the policies adopted.