ASEAN's Bilateral Preferential Trade and Economic Cooperation Agreements: Implications for Asian Economic Integration

Sen, Rahul, Srivastava, Sadhana, ASEAN Economic Bulletin

I. Introduction

While a contentious debate continues to stall the multilateral trade talks at the World Trade Organization (WTO), a plethora of bilateral and regional trading and economic cooperation agreements have been mushrooming globally, and increasingly in the Asia-Pacific, generating a wave of "new regionalism" in Asia (World Bank 2004). This phenomenon was particularly more pronounced both in the aftermath of the regional financial and economic crisis that affected East Asia in 1997-98 and in the inability of the WTO to yield any substantial outcome to improve growth prospects of the Asian economies. "New regionalism" emerging in Asia is much more diverse in both scope and coverage than traditional Preferential Trade Agreements, and delves into issues much deeper than trade liberalization.

As noted by Crawford and Fiorentino (2005), the pace of proliferation of Bilateral and Regional Preferential Trade and Economic Cooperation Agreements (FFAs) (1) has been particularly rapid since the launch of the Doha Development Agenda (DDA) in November 2001, with thirty-three new agreements being notified to the WTO during the 2001-03 period alone. As of 2007, all WTO members, with the possible exception of Mongolia, are now a party to one or more of these agreements. (2) Most of the new agreements involve Asia-Pacific economies, many of which have earlier been averse to FTAs, reflecting the increasing frustration of these countries with the multilateral process of trade liberalization.

However, this is not the only push factor towards the proliferation of FTAs in the AsiaPacific. The recognition of the fact that Asia needs greater economic coordination and cooperation to manage globalization challenges in the aftermath of the 1997 crisis provided an important strategic impetus for countries to enter into such agreements. Bilateralism in the Asia-Pacific is therefore being increasingly viewed by Asian policy-makers as a tool of foreign and economic policy besides that of trade policy, following the U.S. trend of using FTAs more as a strategic foreign policy tool (Schott 2004).

It is therefore not surprising that FTAs, now more of a norm in Asia rather than an exception, are increasingly being regarded by policy-makers as being effective and expeditious instruments for achieving economic cooperation and trade liberalization among "like minded" trading partners, while concomitantly pursuing multilateral trade liberalization through the WTO. These agreements, largely providing preferential market access to its signatory members on a reciprocal basis, are discriminatory by definition against non-members.

The importance of FTAs in shaping an Asian economic integration is being significantly debated in the wake of the first ever East Asia Summit (EAS) in Kuala Lumpur in December 2005, wherein the ten-member ASEAN grouping, (3) China, India, Japan, Korea, Australia and New Zealand, in part recognized the need to create an Asia-wide economic community. There has also been a recent proposal by Japan to create a Comprehensive Economic Partnership in East Asia (CEPEA), comprising all the sixteen participants at the EAS. It has been argued that an Asia-wide regional grouping would provide substantial welfare gains to Asia, and to the rest of the world. With ASEAN entering into FTA negotiations with each of the EAS members, its role in regional economic cooperation efforts assumes significance.

In the above context, this paper analyses the implications of ASEAN's ongoing FTAs and examines its role in fostering deeper economic integration within ASEAN and in Asia. The remainder of the paper is organized as follows. Section II analyses the evolution and characteristics of FTA proliferation in ASEAN, identifying major trends. Section III analyses the perceived benefits and concerns from continued proliferation of ASEAN's FTAs. Section IV analyses the role of ASEAN FTAs in the process of economic integration in the region and in Asia. Section V provides the policy implications and concludes the paper.

II. FTA Proliferation in ASEAN: Evolution and Characteristics

Until the year 200l, ASEAN Free Trade Area (AFTA) was the only regional trade agreement involving the ten-member grouping. The agreement was restricted only to trade in goods and involved a phased elimination of tariffs on intra-ASEAN trade. AFTA is now by and large fully implemented for the older ASEAN members, viz., Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand, with the newer members expected to comply with it by the year 2010. However, it is important to note that for some specific category of products, some of the older ASEAN members have not yet fully complied with AFTA guidelines. It is also important to note that this agreement involves only a 40 per cent value-added cumulative Rules of Origin (ROOs) (4) for non-originating goods, one of the simplest ROOs to be administered under any Free Trade Area.

The current wave of FTAs in ASEAN was initiated by the signing of a first bilateral FTA among ASEAN members involving Singapore and New Zealand in 2001, termed as the Agreement between New Zealand and Singapore for a Closer Economic Partnership (ANZSCEP). Notably, this was one of the few comprehensive agreements at that time that involved no exclusion of products for tariff elimination and covered liberalization and facilitation of trade in services, investments, trade facilitation, government procurement, and intellectual property protection as part of the negotiations. This agreement signalled the intention of Singapore to enter into WTO-plus FTAs that were consistent with the WTO, and also provided avenues to negotiate complex issues bilaterally on which consensus had not yet been reached multilaterally.

Taking serious note of this commercial policy shift of Singapore towards bilateralism, several other ASEAN countries, viz., Thailand, and more recently Malaysia and the Philippines, subsequently jumped onto the bilateral FTA bandwagon. Particularly, the proposal by China to negotiate an ASEAN-China FTA in November 2000 triggered off a domino effect in other Asian countries that led ASEAN as a regional grouping to embrace bilateralism with these dialogue partners proposing similar agreements. Indonesia, the largest ASEAN member and the only one to resist entering into FTAs so far, began its first negotiations with Japan and proposals for bilateral deals are being contemplated with a number of other trading partners, including the United States, and India. This is an important indication of the domino effect that other FTAs of ASEAN are having on Indonesia.

Several recent studies (Aggarwal and Urata 2006; Dent 2006; Sally and Sen 2005) note that trade policy in Southeast Asia is thus currently dominated by FTAs, with a domino effect being observed. These countries, hitherto strong advocates of multilateralism, are now creating multiple FTA hubs around them. (5)

Although it is increasingly difficult to determine an exact number of existing and proposed FTAs involving ASEAN (and its individual members), (6) Table 1 provides details on the progress of all the FTAs launched under ASEAN over the period 2001-06, and indicates that there are fifty or more such FTAs that have been proposed or are being negotiated. Nevertheless, given that more comprehensive data on PTAs are now forthcoming, (7) the following trends seem to emerge.

First, among all the FTA initiatives launched so far in ASEAN since 2001, the ones that have been mostly implemented and are currently in force are Singapore's FTAs (involving New Zealand, Japan, EFTA, Australia, the United States, Jordan, India and Korea), ASEAN-China and ASEAN-Korea (trade in goods only) and Thailand's FTAs (involving Bahrain, Australia and New Zealand). (8) Apart from these, most of the other initiatives are either at the stage of being studied before formal negotiations, or are being currently negotiated, and are therefore not yet implemented (Figure 1). Thus, the likely content and coverage of many of these agreements and their possible impacts on regional and global trading patterns cannot be comprehended yet by detailed empirical modelling.

Second, current FTA activity in ASEAN ranges from that of limited FTAs on trade in goods with large exclusion lists and limited product coverage, to that of highly comprehensive bilateral agreements, especially of Singapore, that cover not just trade in goods, but also services, investments, non-tariff barriers, and regulatory measures for trade and investments. Singapore's FTAs have also covered complex issues of government procurement, competition policy and intellectual property protection that have not yet been put on the agenda for negotiations at the multilateral level under the auspices of the WTO. It is important to note that most of the other FTAs of ASEAN have not included these issues in the negotiations so far, or have very broad provisions that do not include much substance in terms of liberalization and regulation provisions. (9)

[FIGURE 1 OMITTED]

Third, varieties of ROOs to determine preferential treatment for non-originating goods have been applied or are currently being negotiated across ASEAN's FTAs. It is observed that while the value-added (VA) rule is generally applied across Singapore's FTAs, a mix of other criteria such as the change in tariff classification (CTC) and other restrictive rules have also been applied. Even in other ASEAN FTAs, restrictive rules seem to have prevailed over simple ones.

Fourth, there is an overall pattern emerging of ASEAN forging greater economic linkages with the Asia-Pacific through its FTAs with China, India, Japan, Korea, Australia and New Zealand. (10) Although most of the ASEAN initiatives have involved partner countries from Asia, FTAs of Singapore and in particular Thailand have also involved cross-regional negotiations with trading partners from other parts of the world, including North America, Latin America and the African countries. In this context, it is important to note that Singapore has entered for the first time into a plurilateral and cross-regional Trans-Pacific Strategic Economic Partnership (SEP) agreement involving Brunei from ASEAN as well and New Zealand and Chile, which involves a combined market of about 25 million consumers.

Fifth, there is a great deal of overlapping among the FTA partners of ASEAN and the individual member countries. Thus, while Singapore has already implemented its agreements with New Zealand, Australia, India, Korea and Japan, it is also a negotiating member in ASEAN-wide FTA initiatives with these countries. Similarly, Malaysia and Thailand, who are also negotiating a bilateral agreement with Japan, India, Australia, New Zealand and Korea, are also involved as part of the ASEAN-wide …

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Publication information: Article title: ASEAN's Bilateral Preferential Trade and Economic Cooperation Agreements: Implications for Asian Economic Integration. Contributors: Sen, Rahul - Author, Srivastava, Sadhana - Author. Journal title: ASEAN Economic Bulletin. Volume: 26. Issue: 2 Publication date: August 2009. Page number: 194+. © 2008 Institute of Southeast Asian Studies (ISEAS). COPYRIGHT 2009 Gale Group.

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