Academic journal article Journal of Southeast Asian Economies

Go with the Gang, ASEAN!

Academic journal article Journal of Southeast Asian Economies

Go with the Gang, ASEAN!

Article excerpt

I. Introduction

Despite the progress in tariff reductions initiated by the World Trade Organization (WTO) over the past twenty years, there still exist a number of trade barriers and other problems needed to be addressed. Besides, there are conflicts among WTO country members in several issues. All these delay the trade liberalization process, which will take a long time for trade to be fully liberalized. As a result, several countries have moved ahead of the WTO by initiating regional and/or bilateral free trade agreements (FTAs).

By end May 2004, more than 200 agreements have been enforced; 80 per cent of these numbers are bilateral agreements. Recently, ASEAN members have been very active in forming bilateral FTAs with non-ASEAN members. For example, Singapore enacted the Japan-Singapore FTA in 2002 and the U.S.-Singapore FTA in 2003; and Singapore has been negotiating with several countries such as Canada, Mexico, and South Korea. (1) Thailand also signed the free trade agreements with Australia and New Zealand in 2004 and 2005, respectively; and it has been initiating FTAs with several countries.

Many concerns have been raised whether it is the most beneficial to each ASEAN member to sign the agreements separately, rather than collectively. Even though a bilateral agreement may broaden market access, reduce trade barriers, increase investment opportunity and strengthen other cooperation between the two countries, it appears that a small country often loses bargaining power over a big country in arranging the agreement. ASEAN, as a group, would have more bargaining powers in negotiating with big FTA partners such as the United States, China, and Japan. Moreover, bilateral FTAs that ASEAN members have engaged in may lead to welfare losses while trade liberalization among ASEAN has yet fully be honoured. These losses are partly caused by inefficient resource utilization and possible negative terms-of-trade effects, arising from the PTAs.

Another concern of the bilateral agreements that ASEAN members are engaging in, as Sally and Sen (2005) point out, is that these agreements might hinder rather than encourage the ASEAN economic integration due to the diversity of the agreements. To promote and expedite the ASEAN integration, those bilateral agreements need to have some consistency and complement the liberalization within ASEAN.

The objective of this paper is to show the potential gains from stronger economic cooperation, such as comprehensive trade liberalization, within ASEAN. Such liberalization would yield ASEAN greater benefits from the FTAs that already concluded and currently under negotiation, which are ASEAN-China FTA, ASEAN-South Korea FTA, ASEAN-India FTA, ASEAN-Australia and New Zealand FTA, ASEAN-Japan CEP, and ASEAN-U.S. TIFA. (2) In addition, since ASEAN plus 3 FTA (China, Japan, and South Korea) has been the main interest in recent years, this study therefore incorporates ASEAN plus 3 FTA into the investigation.

The above objective can be achieved by, first, using the gravity model of bilateral trade to show evidences that the formation of ASEAN results in more trade among ASEAN members. Second, the study estimates the trade potentials between ASEAN-5 members (3) and seven FTA partners. Then, a Computable General Equilibrium (CGE) model is employed to evaluate and compare the impacts of bilateral FTAs on ASEAN-5 members between the case where each ASEAN-5 country signed PTAs separately and the case where ASEAN-5, with free trade among themselves, as a group signed FTAs. Finally, this paper suggests some trade policy recommendations for ASEAN-5.

The structure of this paper is as follows. The literature reviews are in Section II. Section III presents the gravity model results. Section IV shows the results from the CGE model. Finally, the concluding remarks are presented in Section V.

II. Literature Reviews

The Association of Southeast Asian Nations (ASEAN) founded in 1967 currently has ten country members. …

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