A Quantitative Survey of the Economics of ASEAN-U.S. Free Trade Agreements

By Naya, Seiji F.; Plummer, Michael G. | Journal of Southeast Asian Economies, August 2006 | Go to article overview

A Quantitative Survey of the Economics of ASEAN-U.S. Free Trade Agreements


Naya, Seiji F., Plummer, Michael G., Journal of Southeast Asian Economies


I. Introduction

The United States has considered various forms of economic co-operation with the ASEAN countries for a number of years. For example, in the late 1980s, the ASEAN-U.S. Initiative (Naya et al. 1989), which was a major study initiated by the U.S. and ASEAN governments to explore new means of bilateral co-operation, recommended that a free trade area should be the long-term goal of U.S.--ASEAN economic relations. At that time, ASEAN integration was quite weak and the United States continued to focus on multilateral initiatives. However, in recent years ASEAN economic integration has increased in depth and breadths for example through the creation of the ASEAN Free Trade Area (AFTA) and the ASEAN Investment Area (AIA), and the United States has become quite active in pursuing FTAs throughout the globe. In October 2002, President Bush launched the "Enterprise for ASEAN Initiative" (EAI), which essentially had the ASEAN-U.S. Initiative's same goal; that is, the creation of an PTA between the United States and qualifying ASEAN countries. The EAI framework would be characterized by a series of bilateral FTAs between the United States and ASEAN countries that were both members of the WTO and had a Trade and Investment Framework Agreement in place with the United States (i.e., Brunei, Indonesia, the Philippines, Malaysia, and Thailand). The EAI would explicitly adopt the U.S.-Singapore FTA, concluded at the end of 2002, and one of the most advanced FTAs in the world, as its model.

The goal of this study is to consider the economics of the EAI from a quantitative perspective. The rest of this paper is organized as follows. We begin with an analysis of bilateral commodity trade in a comparative perspective, including estimates of the similarity of export structures of the ASEAN member states' (and China's) exports to the U.S. market, using both rank correlation analysis and an export similarity index (section II). Section III considers directly the economics of a series of U.S.-ASEAN bilateral FTAs using three techniques: (1) a large econometric gravity model, in order to capture the degree of trade bias in the U.S.-ASEAN economic relationship, with a view to ascertaining if these agreements would be characterized as "natural" economic blocs; (2) a review of economy-wide estimates of these FTAs, based on the work of Gilbert (2003); and (3) a disaggregated technique to identify the sectors that will be most significantly affected by the EAI. Section IV gives some concluding remarks.

II. Analysis of Commodity Overlap in the Context of the EAI

The United States was the largest export market for ASEAN as a whole in 2004, accounting for 16

per cent of total ASEAN-10 exports, whereas the export share of Japan and the EU that year came to 12 per cent and 14 per cent, respectively. (1) It also constituted the most important market for Malaysia, Thailand, Cambodia, and Vietnam. China's share of ASEAN exports has grown spectacularly, to 7 per cent in 2004, rising from less than 2 per cent in 1990. This threefold increase underscores the growing importance of the Chinese market to the ASEAN countries, and signals a significant economic motivation for the FTA agreed in November 2004. Intra-ASEAN trade rose marginally to 22 per cent from 19 per cent over the same period.

At the same time that developing Asia's share in ASEAN trade has been rising substantially (from about one-third to nearly one-half of total ASEAN exports and imports over the 1990-2004 period), the share of major OECD countries has fallen commensurately. The U.S. share of the (original) ASEAN-5 exports actually fell from 20 per cent in 1990 to 15 per cent in 2004, despite being the single most important market to ASEAN. (2) The fall in Japan's share is even more dramatic, from 19 per cent to 11 per cent over the same period.

The ASEAN countries constitute an important market for certain U.S. exports, although a fairly even distribution of U. …

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