Academic journal article Journal of Southeast Asian Economies

A Qualitative Analysis of the Impact of the Fifth EU Enlargement on ASEAN

Academic journal article Journal of Southeast Asian Economies

A Qualitative Analysis of the Impact of the Fifth EU Enlargement on ASEAN

Article excerpt

The fifth EU enlargement, incorporating Central and East European Countries (CEECs-10) into the European Union incumbent states (EU-15), is deemed to have a substantial trade impact on the Association of Southeast Asian Nations (ASEAN). The impact is twofold: first, since the EU-15 is a crucial trade partner of ASEAN, the EU enlargement results in a larger potential market for ASEAN exporting firms; second, since the trade patterns between ASEAN and EU is similar to the trade between the accession countries and the incumbent states, (1) there is a possibility of an increase in the degree of export competition between ASEAN and the CEECs-10 in the EU15 market (trade diversion); the incumbent states may indeed reduce their imports from ASEAN but increase the quantity of imports from the accession countries due to a significant elimination of trade barriers between them. The prime objective of this paper is therefore to analyse the impact of the enlargement on third countries, by focusing on the notion of "export threat" from the viewpoint of ASEAN countries. Methodologically, the analysis goes beyond computable general equilibrium (CGE) modelling by using a qualitative framework; it critically reviews the available indices and it proposes two new indices that will provide a deep understanding of the impact of the enlargement on ASEAN, while focusing mainly on the potential changes in the patterns of ASEAN trade at the 3-digit level of SITC Rev.3 industry. Another innovative feature of the paper is its focus on the impact of the enlargement on third countries, since most of the literature so far has dealt with this impact on either the EU-15, or the CEECs, or both. The analysis is enshrined in the field of inter-regionalism, by studying the trade interactions between two large regions of the world, in spite of their many inherent structural dis-similarities.

This paper comprises three sections. The first section describes the research methodology and analyses the shortcomings of various standard trade competitiveness indices; it then proposes two new indices, the Rivalry Threat Index (RTI) and the Export Threat Index (ETI) that will be put to the test in the ensuing section. Section III concludes the analysis.

I. Literature Review and Methodology

Most of the literature on ASEAN-EU relations focuses on the impact of the enlargement on either the EU-15, or the CEECs-10, or both. Studies relating to the impact of the enlargement on third countries are rare. The only two quantitative studies on the impact of the EU enlargement on Asian countries are those of Lee and Mensbrugghe (2004) and Andreosso-O'Callaghan and Uprasen (2008) who employ a computable general equilibrium (CGE) model. (2) In spite of its many strengths, the CGE framework suffers from a number of limitations: it does not take into account structural indicators such as the degree of comparative advantage, the degree of trade complementarity and the degree of competition among trade competitors in a third market. In addition, due to the constraints on data compiling, the multi regional CGE model cannot give an analysis at the disaggregated industry level. This level can nevertheless be analysed with the help of trade indices measuring trade competitiveness.

Six conventional trade indices are succinctly discussed in this section and they form the basis for the development of two additional refined trade indices.

1.1 Limitations of the Conventional Trade Indices

The Revealed Comparative Advantage Index

([RCA.sub.i]= [[x.sub.i]/X - [m.sub.i]/M]), the GL index

[GL.sub.i] = 1 - [[absolute value of [X.sub.i] + [M.sub.i]]/([X.sub.i] + [M.sub.i]]), a dynamic IIT index

such as that developed by Menon (1996) and the TCI (Trade Complementarity Index), are the most popular indices that help to measure trade comparative and competitive advantages. A positive value of the RCA, which indicates product specialization between any two trade partners, implies a revealed comparative advantage of the country; the GL index measures the degree of intra-industry trade. …

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