Academic journal article Asia - Pacific Issues

The Move to Preferential Trade in the Western Pacific Rim

Academic journal article Asia - Pacific Issues

The Move to Preferential Trade in the Western Pacific Rim

Article excerpt

Economists suggest that the welfare gains from trade liberalization can be maximized either through unilateral liberalization or through negotiating non-discriminatory agreements at the global level through the World Trade Organization (WTO). In recent years, however, many countries have turned to preferential trade arrangements (PTAs) as a significant component of their liberalization strategy. More than a hundred such agreements have been notified to the WTO since its establishment in 1995, the vast majority of these involving only two parties.

Countries of the western Pacific Rim were slow to jump on the PTA bandwagon: Throughout the postwar period, they were strong adherents of multilateralism in trade negotiations. Beyond the negotiated commitments they undertook in the General Agreement on Tariffs and Trade (GATT) and the WTO, they preferred to reduce their trade barriers on a unilateral and nondiscriminatory basis. The region's preferential trade groupings (the Association of Southeast Asian Nations [ASEAN] and the Australia-New Zealand Closer Economic Relations Trade Agreement) were only partial exceptions to the rule: Their members continued to engage in significant unilateral and nondiscriminatory tariff reductions from the mid1980s onward, an approach that made sound economic sense given the relative unimportance of their regional partners in their overall exports.

At the end of 2001, only China, Hong Kong, Japan, Korea, Mongolia, and Taiwan, among the 144 members of the WTO, were not parties to preferential trade agreements. By this date, however, all the northeast Asian economies had been included in one or more proposals for bilateral or plurilateral PTAs. In the last four years, more than 40 such arrangements involving western Pacific economies have been proposed or are under negotiation, or have been agreed on and are being implemented (see Table 1). For the first time, Japan and China, the world's second and third largest economies, have either signed or are negotiating PTAs. These agreements will have significance for not only the participants and regional nonparticipants, but also the multilateral trading system as a whole.

Is the move to preferential trade by western Pacific Rim countries cause for concern? Why have they changed the direction of their trade policies? What are the likely effects of PTAs on the economies of participants and nonparticipants? How will the agreements affect the balance of pro- and antiliberalization forces within the participating countries? How will they affect liberalization in regional and global forums? These are the principal questions addressed below.

The Pros and Cons of Preferential Trade Agreements

PTAs (especially bilateral agreements) have been the dominant form of trade agreement since the Industrial Revolution. Although economic historians have often identified the preferential agreements of the interwar period as a major contributory factor to the global depression of the 1930s, no evidence exists to date that the current wave of PTAs is responsible for an increase in global trade barriers; in fact, overall tariff levels have fallen substantially thanks to the successful conclusion of the GATT's Uruguay Round. PTAs certainly have not produced the breakdown of the global system into rival blocs that was predicted by some at the end of the 1980s. Other positive arguments can be made in favor of the new bilateralism:

* PTAs are being negotiated more speedily than global trade agreements now that the WTO membership is approaching 150 economies.

* PTAs present opportunities for exposing protected sectors gradually to international competition, thus paving the way for an eventual full liberalization. Although PTAs are often labeled "second best" by economists, they may represent an improvement on the status quo.

* Provisions may be included in preferential agreements that go beyond commitments previously made in the WTO. They can produce deeper economic integration and serve as testing grounds for collaboration, which can later be extended through global agreements. …

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