ASEAN's Bilateral Preferential Trade and Economic Cooperation Agreements

By Sen, Rahul; Srivastava, Sadhana | Journal of Southeast Asian Economies, August 2009 | Go to article overview
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ASEAN's Bilateral Preferential Trade and Economic Cooperation Agreements


Sen, Rahul, Srivastava, Sadhana, Journal of Southeast Asian Economies


Implications for Asian Economic Integration

The phenomenon of proliferation of preferential trade agreements, bilaterally and regionally, 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. This paper analyses the implications of ASEAN's ongoing FTAs and examines its role in fostering deeper economic integration within ASEAN and in Asia. It analyses the evolution and characteristics of FTA proliferation in ASEAN, identifying major trends. The paper argues that in their present state, if not properly designed and managed, there are valid concerns that these FTAs could end up becoming a stumbling block towards integration efforts. Implementation integrity among FTA members therefore remains a key to its success, and empirical and policy research needs to be much more forthcoming in this area in order to fully understand the economic ramifications of these FTAs.

Keywords: Free trade agreements, economic integration, ASEAN.

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 (FTAs)' 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.

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