IPE-K: FTA and Regionalism

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IPE-K: FTA and Regionalism

* Some parts of this note are summary of the references for teaching purpose only.

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IPE-K <Lecture Note 5 > 13.4.26

Semester: Spring 2013 Time: Friday 2-5 pm Professor: Yoo Soo Hong Office Hour: By Appointment Mobile: 010-4001-8060 E-mail: [email protected] Home P.: http://yoosoohong.weebly.com

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The 21st Century is the Asian Century.

Regional blocs, including East Asia will be prominent.

Principal blocs will be Europe, East Asia and the Americas.

Asia will be almost half of the world’s economy by 2020.

Global View of Asia

Issues for Regionalism

Lessons from EU

Economic conditions

Political / Diplomatic / IR conditions

Leadership

Institutional development

How much transfer of sovereign power (right) ?

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Three Mega-Regions

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EEUU

EFTA, ACP CH

LL ..AA ..

MERCOSUR EE aa ss tt AA ss iiaa AA SS EE AA NN ++ ３３++ IINN DD IIAA ++ AA UU SS ･･ NN ZZ

FTAA

NNAA FFTTAA USA

CANADA MEXICO

A S E M A P E C

T r an s-A tlan tic M ar k et P lace

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Main Regional FTAs/EPAs

Competitive Liberalization in Asia-Pacific

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ASEAN+3 FTA(ASEAN, Japan, China,

Korea)

ASEAN+6 EPA(ASEAN , Japan, China, Ko-

rea India, Australia, New Zea-land)

Free Trade Area of Asia-Pacific (FTAAP)

USA Canada Mex-icoPeruChileHong KongTai-wanRus-siaPapua New Guinea August 2006

Proposed by Japan at ASEAN Economic Minis-ters’ Meeting

November 2004 Proposed by China at ASEAN+3 Summit

November 2006 Proposed by the US

Population(thousand) 2,059,400Trade (million $) 2,533,847GDP(million $) 9,899,420Intra-re-gional trade 43.1%



http://en.wikipedia.org/wiki/File:Seal_of_ASEAN.svg



Issues and Challenges in Regional Integration

Sequencing: How should Asia sequence its integration efforts in the areas of trade, monetary, and financial integration?

Style: What is the appropriate style for Asian economic integration? Specifically, how institution-intensive should Asia’s integration initiatives be?

Scope: What would be the scope of Asian economic integration in terms of countries and sub-regions covered?

Speed: How fast should Asia pursue regional integration in its various dimensions/tracks, or what is the appropriate speed for Asian economic integration?

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Asia now accounts for about 60% of the world’s population, 40% of the global output, and 30% of world trade.

- With the possible exception of the 1997-98 crisis years, Asia has been the fastest growing region in the world economy for many decades.

Impressive achievements in poverty reduction and improvements in socio-economic conditions in the last few decades.

- China and India – two countries with over a billion people each – have also joined the Asian economic success story.

Most projections indicate that Asia’s importance in the global economy is going to increase in the next few decades.

- Current assessment is that by 2020 most large Asian economies would have graduated to middle income status.

Asia’s Importance in the Global Economy to Rise

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Rise of Asia Regional Development− There are already important and rapidly developing economic linkages

among parts of Asia, particularly in East Asia, where a grouping of ASEAN plus Japan, China and Korea seems to be emerging. The politics of such a grouping are not simple, for the Japan-China relationship is evolving as the Chinese economy grows, and as it becomes clearer that China will overtake Japan at some point in the not too distant future

− Some in East Asia talk of following the example of Europe by improving trade and financial links, and later moving to a common market and unified financial system. It is recognized that this will take a long time, but those involved note correctly that it took the European Union a long time to evolve to its current condition

− At present, there is much talk of an East Asian common currency. Whether there would be a basis for such a currency depends on how China’s financial and currency management systems evolve. Since China would eventually be dominant in an East Asian economic bloc, its preferred currency arrangements will determine the eventual outcome.

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Economic Implications− The rise of Asia, especially the rise of East Asia and of India, is already re-

shaping the world economy.− China has a comparative advantage in everything. Part of the anxiety must

derive from the discomforts of the adjustment process forced by the dy-namism of Asia.

− Most of the developing countries and most of China’s neighbors can count the gains from China’s (and India’s) booming growth. China’s demand for raw materials, which has produced a boom in commodity prices, has helped many developing countries. China and India’s energy needs have helped push oil and other energy prices to their highest sustained levels.

− The fact that the global economy has been growing very rapidly by historical standards in the last few years despite concerns over global imbalances, the years 2004-2006 will see high growth rates in Latin America and Africa, due to the rise of Asia as to as the global engine of United States growth.

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− Asian growth has benefited greatly from the relatively open international trading system that was built up after World War . All the East Asian Ⅱmiracle economies pursued export led growth strategies, with the bulk of the exports going to industrial countries in the west.

− However the impact of China and India on the international financial system does not depend mainly on the size of their quotas in the inter-national financial institutions.

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Political Implications− Are we more sophisticated now than the world was a hundred years ago?

How long can the Pax Americana continue to maintain stability in Asia? How wise will the sole superpower be in its future dealings in Asia? How can China and India take their rightful places in the world and in their regions without further confrontations?

− Does the fact that China and India are nuclear powers and so is Pakistan, make the situation more stable as well as more dangerous? How will a po-tentially nuclear Iran influence the equilibrium? How important is the North Korean nuclear threat, and how long will Japan be willing to remain non-nu-clear in the face of that and other threats?

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Regional Economic Integration

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- Process whereby countries in a geographic region cooperate to either reduce or eliminate barriers to the free flow of products, people, or capital

Levels of Regional Integration

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Political Union - Coordinate aspects of members’ economic and political systems

Economic Union - Remove barriers to trade, labor, and capital; set a common trade policy

against nonmembers; and coordinate members’ economic policies

Common Market - Remove all barriers to trade, labor, and capital among members; and set a common trade policy against nonmembers

Customs Union - Remove all barriers to trade among members, and set a common trade

policy against nonmembers

Free-Trade Area - Remove all barriers to trade among members, but each country has

own policies for nonmembers

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Type and Scope of RTA

Custom removal within the re-gion

Common cus-tom for non-members

Free movement of prod. Factors within the re-gion

Common eco-nomic policy adoption

Super-national entity

FTA (NAFTA)

Custom Union(Benelux CU)

Common Market (EEC)

Economic Community(EC)

Full Economic Integration(EU)

Effects of Integration

Potential benefits

Trade creation

Greater consensus

Political cooperation

Creates jobs

Potential drawbacks

Trade diversion

Shifts in employment

Loss of sovereignty

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17Source: ADB staff elaborations based in part on field interviews.

Main Regional, Intraregional, and Transregional Forums in Asia

Evolution of Intra Regional Trade Shares (%)

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Regionalization in East Asia

- Concentration of economic activities (trade in goods and services, capital, people, etc) in a particular region Benefits of agglomeration > costs of agglomeration

- Measurement of regionalization in terms of trade: Increasing intra-regional trade in world trade Increasing intra-regional trade in region’s overall trade

Two Types of Regionalization - Market-driven regionalization - Institution-driven regionalization

Factors behind Market-driven Regionalization

- Rapid economic growth - Trade and FDI liberalization: multilateral and unilateral liberalization

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- Trade creation or trade diversion?- A recent IMF staff paper suggests that Asian FTAs have not led to trade diversion.- Building block or stumbling block?- WTO consistency?- Trade realism

Some Basics of Regionalism

RTAs have obvious benefit for members

- Second-best choice- Scale economy and competition- More attractive to FDI- Political and geopolitics benefits

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Regionalism or not?

- Economic gains are not the only determining factor.

- Multiple objectives of regionalism:

• Regional politics and stability• Strengthen domestic policy reform• Increasing multilateral bargaining power• Securing market access• Forming strategic linkages

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- Trade within the Asian region is far from reaching its potential, and policies that facilitate integration and more efficient regional trade accelerate growth and expand its basis, especially for lower-income Asia.

- Tariff barriers are only part of the challenge to further economic integration and trade expansion in the region. A deeper and more inclusive Asian Free Trade Area can achieve for its members larger benefits than that would arise from

global trade liberalization along WTO lines.

- The economies of the ASEAN have the most to gain (in domestic terms) from Asian economic integration, provided that this happens in a relatively uniform

way.

Why integrates?

The Economic Role of China in Asian Economic Integration

- China becomes the major market for many Asian economies- China’s rise as the major factor in shaping the new division of labor (production- sharing network)

Economic Integration in Asia

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Intensity of FTA Activity in Asia

Growth of FTA in East Asia - The number of concluded FTAs includes Singapore (20), the PRC (12),

Japan (11), India (11), Thailand (11), and Malaysia (10), with many more FTAs under negotiation. It is noteworthy that ASEAN—with one of the oldest trade agreements in Asia—is emerging as the major regional hub linking ASEAN members with the region’s larger economies. Hav-ing enacted FTAs with the PRC, Japan, and the Republic of Korea, ASEAN recently implemented regional agreements with India and with Australia and New Zealand jointly, and is in FTA discussions with the EU.

- The varying degrees of intensity of FTA activity across economies in Asia can be related to several factors, including economic size, per capita income, levels of protection, economic geography, and produc-tion network strategies of MNCs.

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- Singapore is by far the most active Asian economy in terms of the number and geographic coverage of FTAs. With its strategic location, the region’s most open economy, and world-class infrastructure and lo-gistics, the country is the regional headquarters for many leading MNCs.

- Singapore is seeking access to new overseas markets, particularly for services and investments. The country is a founding member of the ASEAN Free Trade Area (AFTA) and has implemented bilateral agree-ments with the largest Asian economies—the PRC, India, Japan, and the Republic of Korea—as well as economies outside the region, includ-ing the United States (US) and Australia.

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- As a supporter of multilateralism, Japan was a latecomer to FTAs. The region’s first developed economy, Japan has the strongest base of gi-ant MNCs involved in production networks and supply chains through-out Asia. One motivation for Japan’s engagement in FTAs is to provide a market-friendly and predictable regional business environment for its MNCs. Japan has rapidly implemented bilateral economic partnership agreements (EPAs) with 10 countries,5 an agreement with ASEAN, is negotiating agreements with Australia and India, and is about to reopen negotiations with the Republic of Korea.

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- The two Asian giant developing economies, the PRC and India, are

forming FTAs to ensure market access for goods and expand regional coverage for outward investment. To this end, the PRC implemented separate FTAs on goods and services with ASEAN and is now finalizing its negotiations on an investment agreement. The PRC has also forged bilateral comprehensive economic partnership agreements (CEPAs) with Hong Kong, China and Macau, China; FTAs with Chile and Pak-istan; and is a member of the Asia–Pacific Trade Agreement (APTA). In addition, the PRC concluded FTAs with Singapore and New Zealand in 2008, and an Economic Cooperation Framework Agreement with Taipei,China in 2010. India is a member of APTA and has a compre-hensive agreement with Singapore. It also has agreements with its South Asian neighbors.

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FTAs in Asia by Country and Subregion

28Source: Asia Region Integration Center website. www. Aric.adb.org (accessed 15 February 2012)

Growth of Concluded FTAs in Asia(number of FTAs by economy)

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FTA = free trade agreement.Note: FTAs in Asia cover all FTAs with at least one Asian economy. Here, Asia includesthe 16 economies included in the figure.Source: ADB’s FTA Database (available: www.aric.adb.org), downloaded August 2010.

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Increase in Trade and Expansion of Foreign Markets - Trade creation effects and trade diversion effects

Enhance Technological Capability and Competitiveness - Product differentiation and new technology development for enhancing

international competitiveness

Induce FDI and Capital Accumulation

- FDI positively effects capital accumulation, technology transfer, employment, exports, etc.

Improve Economic System Through Opening - Transforming the system through learning and for world standards Enhance negotiation leverage and credibility against foreign partners

Benefits of FTA

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Institution-driven Regionalization in East Asia- Regional cooperation APEC: Trade and FDI liberalization and facilitation, Economic and technical cooperation

- Bilateral and multilateral cooperation: Free trade agreements (Economic Partnership Agreements for comprehensive contents), ‘Chiang Mai Initiative’ (Currency swap), etc

- ASEAN, AFTA, AIA (ASEAN Investment Area), etc.

- ASEAN+3 (China, Japan, Korea)

Recent Surge of FTAs in East Asia

- Trend: East Asian economies started showing strong interest in FTAs toward the end of 1990s.

- Special characteristics: Comprehensive FTA (EPA) covering trade and FDI liberalization, facilitation, economic cooperation: APEC’s three pillars

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The Factors behind the Proliferation of FTAs in East Asia

- Increase in market access - Sharp increase in FTAs in the world - Slow progress in trade liberalization under the WTO - Promote liberalization and policy reforms - Financial crisis in 1997-1998 - Rivalry among East Asian countries (competitive FTAs, China-Japan, among ASEAN members)

Motives behind FTA for Selected East Asian Countries- Japan, Promote economic growth in East Asia: Increasing dependence on East Asia, Improve business environment for Japanese firms

- China, Promote economic relations with East Asia

- Korea, Play a role of facilitator for institutional regionalization in East Asia, Reunification of Korean Peninsula

- ASEAN, Maintain bargaining power in East Asia, Receive economic assistance

Arguments Surrounding Economic Integration

Trade Creation and Trade Diversion

- Trade creation – Increased exports by new members to other members resulting from membership

- Trade diversion – Decreased exports to members of the economic union by nonmember nations often resulting in the advantage shifting away from the lower-cost producer to the higher cost producer

Reduced Import Prices – Results from importers’ efforts to remain com-petitive despite tariffs imposed

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Increased Competition and Economies of Scale- The larger market created also means more competing firms which can result in greater efficiency and lower consumer prices- Internal and external economies of scale – Lower production costs

from greater production or free mobility of factors of production Higher Factor Productivity

- Movement of labor and capital from areas of low productivity to areas of high productivity

- Poorer countries may lose badly needed investment capital or labor to a more profitable richer country

- More developed countries may lose companies who move to areas where operating costs are lower

Regionalism versus Nationalism – The greatest impediment to economic integration

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Regional Groupings – Asia

Integration in Asia - Market forces are compelling Asia to move toward formal integration

- Association of Southeast Asian Nations (ASEAN) was very informal

- ASEAN Free Trade Area (AFTA) formed in 1991 reduced tariffs and set goal for customs union by 2010

- East Asia Economic Group (EAEG) has been proposed

- Asia Pacific Economic Cooperation (APEC) has set goals of liberalizing trade

- South Asian Association for Regional Cooperation (SAARC) on Indian subcontinent in 1985 35

Regional Cooperation and Integration

Recent Progress

- With the global economy immersed in double-track growth- emerging economies expanding faster than advanced countries- Asia is forging ahead in part due to increased regional integration.

- Asia is leading growth in global trade through increased openness, with intraregional and “South- South” trade growing faster than trade with traditional markets in the US and Europe.

- The depth of trade integration varies across subregions, with the em-phasis on intermediate goods trade reflecting expanding regional pro-duction networks.

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- Cooperation in trade policy has developed most effectively in Asia through a combination of unilateral actions. But some regional free trade agreements (FTAs) also help foster intraregional trade flows, with

the number of FTAs involving at least one Asian country dramatically increasing over the past decade. The degree of trade integration will likely increase.

- Asia’s financial integration lags behind trade integration. The region’s fi-nancial markets remain more integrated through global markets than among themselves, but signs since the 2008/09 global crisis show fi-nancial integration has accelerated; yet subregional variations remain significant.

- Indeed, Asia’s infrastructure gap is huge, requiring more cross-border connectivity to strengthen intraregional trade and regional demand.

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- In addition to physical infrastructure, for effective connectivity Asia needs to strengthen its soft infrastructure—policy, legal, regulatory and

institutional frameworks, along with systems and procedures.

- International transmigration—including labor mobility within Asia—is in-creasingly important as migrants contribute to growth both in host

economies and via remittances back home.

- Regional integration can expand markets and input sources, better allo-cating resources across the region, thus accelerating economic growth. It can also improve risk-sharing. But there are also downside

risks, ranging from potential contagion to growing income inequality and polarization.

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Integration Perspectives

The current system of overlapping FTAs seems to gain a certain level of appreciation; economic/political momentum toward plurilateral framework may not be very strong in East Asia.

ASEAN+3 vs. ASEAN+6– Consolidated FTA: not worthwhile discussing seriously without CJK FTA– Forum competition: depending on attractiveness of topics, willingness for dialogue partners to participate in, and the feeling of ownership by ASEAN

East Asia vs. Asia-Pacific– Approach and agenda are different (pragmatism vs. rule-oriented, advanced-country-oriented vs. development); can go both at the same time.– Effective interactions of the two would provide an alternative framework

for G2.

Asia-Pacific is likely to lead further development of FTA networking/consolida-tion in the coming years. 39

Forming a Regionwide FTA

- There is increasing recognition in Asia of the merits in forming a re-gionwide FTA as a means to consolidate the plethora of bilateral and plurilateral agreements.

- Such an FTA would confer various economic benefits: increase market access to goods, services, skills, and technology; increase market size to permit specialization and realization of economies of scale; facilitate the FDI activities and technology transfer of MNCs; and permit simplifi-cation of tariff schedules, rules, and standard.

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EAS (East Asia Summit)- The East Asia Summit (EAS) is a forum for dialogue on broad strategic, po-

litical and economic issues of common interest and concern with the aim of promoting peace, stability and economic prosperity in East Asia. It is an open, inclusive, transparent and outward-looking forum, which strives to strengthen global norms and universally recognized values with ASEAN as the driving force working in partnership with the other participants of the East Asia Summit.

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ASEAN + 3

- The leaders of Japan, China, and Korea were invited to the informal ASEAN leaders' meeting in December 1997, in the midst of the Asian financial crisis, which de facto initiated the ASEAN 3 process. Many ministerial processes have been created within the ASEAN 3 framework, including processes for foreign affairs; economy and trade; macroeconomics and finance; environment, energy, health, labor, science, and tech-nology; and social welfare. China regards ASEAN 3 as a natural grouping for East Asia's trade and investment cooperation and has proposed an EAFTA.

- The ASEAN 3 leaders agreed in 2004 that the establishment of an "East Asian Com-munity" is a long-term objective and affirmed the role of ASEAN 3 as the main vehicle for this eventual establishment. The East Asia Study Group (EASG 2002) had identi-fied seventeen concrete short-term measures and nine medium- to long-term mea-sures to move East Asian cooperation forward. The leaders then endorsed in 2003 the implementation strategy of the short-term measures--to be realized by 2007--and in 2004 encouraged a speedy implementation of the short- and long-term measures. Some key long-term measures relating to economic, trade, and investment integra-tion, with the economic community in mind, include:

* formation of an East Asian Free Trade Area (EAFTA);* establishment of an East Asia Investment Area by expanding the AIA; and* promotion of investment by small- and medium-sized enterprises (SMEs). 42

ASEAN + 6

- ASEAN 6 (13 ASEAN 3 members and Australia, India, and New Zealand) has met three times since December 2005, focusing on wider issues includ-ing avian flu, education, energy, finance, and natural disasters. Japan re-gards ASEAN 6 as an appropriate group for East Asia's trade and invest-ment cooperation and has proposed a CEPEA

- Future economic cooperation in East Asia, leading to an East Asian eco-nomic community, is likely to evolve around the multiple groupings under ASEAN, ASEAN 1's, ASEAN 3, and EAS (or ASEAN 6). It is likely that the ASEAN Economic Community, to be created by 2015, will be the hub of East Asian economic integration, thereby securing ASEAN as the driving force, ASEAN 3 as the main vehicle for an eventual East Asian economic community, and the EAS as an integral part of the overall evolving regional architecture

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APEC

- APEC has encouraged trade and investment liberalization in a voluntary and unilateral fashion within an Asia-Pacific context. Australia played a ma-jor role in promoting APEC as a trans regional forum with the basic princi-ple of "open regionalism". One of its most important achievements was to induce unilateral, voluntary trade liberalization of the then non-WTO mem-bers, such as China and Taipei, China. But APEC's prominence appears to have declined since the Asian financial crisis because of its inability to ef-fectively respond to the crisis, and as its members have pursued bilateral and sub regional FTAs. Open regionalism can remain important, nonethe-less, if APEC members take APEC--and WTO--principles as a liberalization infrastructure for their FTAs and attempt to go beyond them.

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Economic Position of NEA

Korea China Japan Sum

GDP1,014

(1.6%) 5,878

(9.3%) 5,459

(8.7%) 12,351

(19.6%)

Export442

(2.9%)1,580

(10.5%)772

(5.1%)2,794

(18.6%)

Import415

(2.7%)1,394

(9.0%)694

(4.5%)2,503

(16.1%)

(2010, Bil.US$)

The three countries share 20% of the world total GDP.

Exports share 19%, imports share 16%.

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Shares of Intra-regional Trade Shares of Intra-regional Trade between CJK

Source: IMF (2011), Direction of Trade Statistics.

% %

Intra-Regional Trade Trends

FTAs involving China, Japan and Korea

FTAs concluded by CJK

Japan: Singapore, Mexico, Brunei, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, ASEAN, Chile, Switzerland, Peru and India

Korea: Chile, Singapore, the EFTA, ASEAN, the United States, the European Union, India and Peru

China: Hong Kong, Macao, Chile, Pakistan, ASEAN, New Zealand, Singapore, Peru and Costa Rica

Ongoing FTA negotiations by CJK

Korea: Canada, Mexico, the GCC (Bahrain, Kuwait, Oman, Qatar,

Saudi Arabia, the UAE), Australia, New Zealand, Colombia and Turkey

Japan: Australia and the GCC China: Australia, the GCC, Iceland, Norway and SACU (Southern

African Customs Union)

Many FTAs under study or preparation involving CJK

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NO FTA between China, Japan and Korea

Japan-Korea FTA

Korea-Japan FTA negotiations started in December 2002 and have

been stalled since November 2004

Currently only Director-General-Level Consultations on a Korea-

Japan FTA are under way

China-Korea FTA

Official tripartite joint study on a Korea-China FTA, which started in March 2007, was concluded in May 2010

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China-Japan-Korea FTA

Joint Study Committee on a CJK FTA

Agreed at the Trilateral Summit Meeting in Beijing, in October 2009

Five meetings since May 2010, and two more meetings to be held

by the end of 2011

At the Trilateral Summit Meeting, which was held in Tokyo in May

2011, the leaders agreed to conclude the Joint Study within the year.

The outcome of the Joint Study Committee was submitted at the

next year’s Trilateral Summit Meeting, 2012.

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Korea’s FTA Partners

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Global FTA Network of Korea

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Korea’s Trade Volume Under FTAs

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- With completion of the FTA network within 5 years, Korea’s trade ratio with FTA partners will increase up to 76%.

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Korea’s Motivation of FTAs

- Korea: heavily dependent upon foreign markets in its development process

- Trade openness in 2005: Korea(65.7%) vs. NAFTA(25.8%), Japan (24.3%), EU(32.2%), China(59.3%), ASEAN-7(154%)

- Strongly supported multilateral trade negotiations as Korea has been one of the greatest beneficiaries of the GATT/WTO, but just ignored FTAs

- Regionalism revived and making fortress in foreign markets, so urgent need to change its trade policy to take new markets and not to lose existing ones.

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Characteristics of FTAs of Japan

• Focus on East Asia (East Asia-wide FTA) => shifting toward broader coverage (India, Chile, Gulf State etc)

• Comprehensive framework: WTO-plus +Economic Partnership Agreement (FTA, FDI, Economic Cooperation ) +Free movements of goods, funds, people, and information (FTA-plus) +System harmonization (e.g. Intellectual property right (IPR) , competition policy)

• Recent changes: +Increasing importance of speed +Bilateral FTAs with ASEAN members to regional FTA with ASEAN

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Japan’s FTA Strategy - Focus on East Asia- Comprehensive framework: WTO-plus Economic Partnership Agreement (FTA, Economic Cooperation: Policy coherence)- System harmonization (technical standard, etc)

Japan-Singapore EPA- Liberalization: goods trade, service trade, FDI, government procure’t, etc.- Facilitation: trade, FDI, mobility of natural persons, etc.- Cooperation: science and technology, information technology, human resource development, tourism, etc.

* Obstacles to FTAs for Japan

- Liberalization in agricultural imports - Labor mobility

Economic Partnership AgreementEPA: Japan’s FTA Strategy

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Investment

FTA Market Access

Goods, Services Movement

of Persons Bilateral

Cooperation

Government

Procurement

Business

Environment

Competition

EPA

Observatory Characteristics

Recent and Interrelated Developments:

- First, Asia’s advanced production networks, which underlie its spectacu-lar global export success over the past several decades, have deep-ened regionally. Production processes have been broken down into smaller processes, with each process located in the most cost effective economy, thereby further improving efficiency.

- Falling regional trade barriers and logistics costs, along with technologi-cal progress, underlie this trend. Intraregional trade in Asia has in-creased significantly, particularly in the production of parts and compo-nents, and this trend may continue with further regional liberalization via FTAs.

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- Asia—a relative latecomer to using FTAs as a trade policy instrument—is now at the forefront of global FTA activity with 61 concluded FTAs. The Association of Southeast Asian Nations (ASEAN) is emerging as the hub for Asia’s FTAs, with other major Asian economies joining the FTA bandwagon. Policy support for the deeper integration of production networks, regional integration efforts in other major markets, and the 1997–1998 Asian financial crisis have spurred the growth of Asian FTAs.

Potential Problems

- Issues and concerns highlighted include low FTA preference utilization, a “noodle bowl” problem of criss-crossing agreements that potentially distort trade toward bilateral channels, excessive exclusions and spe-cial treatment in FTAs, and the possibility that the multilateral trading system may be progressively eroded. FTAs are a relatively new phe-nomenon in Asia and a dearth of empirical evidence, particularly with respect to patterns of Asian FTAs and business impacts, has made it difficult to verify the validity of these concerns.

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The map shows FTAs signed or under negotiation in January 2006. East Asia is defined here as the 10 ASEANs, China, Japan and Korea. Source Richard Baldwin 2006

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References

ADB. 2012. “Asian Economic Integration Monitor” (PDF).

Kawai, Masahiro, and Ganeshan Wignaraja. 2010. Asian FTAs: Trends, Prospects, and Challenges. ADB Economics Working Paper Series. (Google: pdf)

Urata, Shujiro. 2005. “Proliferation of FTAs in East Asia”. (Google)

Watanabe, Yorizumi. 2011. “Strengthening and Institutionalizing Japan – EU Economic Relations”(PPT).

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Documents

IPE-K: FTA and Regionalism