Regional Trade Liberalisation in East Asia and the Asia-Pacific: the Role of China

Robert ScollayPECC Trade Forum

and NZ APEC Study CentreUniversity of Auckland

Background: Contrasting Periods1994-1999 v. 1999-2004 (1)

1994-99 No new PTAs in E Asia, only 2 among APEC members

in the Americas Principal emphasis on WTO and APEC process in

both E Asia and Asia-Pacific– i.e. focus on non-discrimination and “open regionalism”

Commitment to APEC’s Bogor goals unquestioned in both E Asia and Asia-Pacific

NE Asia an “empty box” in regional/global map of PTAs

E Asian regionalism overshadowed by APEC– Trans-Pacific emphasis

Background: 1994-1999 v. 1999-2004 (2)

1999-2004 14 new PTAs concluded in Asia-Pacific, many more “on

the way”– 5 are intra-E.Asia, 7 link E Asian economies to other APEC

economies

PTAs the central focus of trade policy– Doubts over outcome of WTO’s DDA, liberalisation no longer a

key focus of activity in APEC

Ability to reach Bogor goals increasingly questioned NE Asia a full player in the PTA “game” Rise of E Asian regionalism overshadowing APEC

Trends in Asia-Pacific PTAs (1)

Bilateral Agreements 14 PTAs since 1999 are all bilateral

– diverse regional linkages NE Asia-SE Asia (4) - includes China-Thailand Intra-NE Asia (1) - includes China-Hong Kong SE Asia-Australasia (4) Trans-Pacific: E Asia-Americas (3) Trans-Pacific: Australasia-Americas (1) Intra-American (1)

– Some between small/medium economies but most link a small/medium to a large economy tendency to “hub and spoke” patterns reinforced by “domino effect”

Trends in Asia-Pacific PTAs (2)

“Hub and Spoke” patterns– Based on US, Japan, China, some “secondary hubs”– obvious disadvantages for “typical” spoke

East Asian regionalism– Boosted by reaction to East Asian crisis– Initial emphasis on “ASEAN Plus Three”– Competing ASEAN-China and ASEAN-Japan initiatives

Series of bilaterals or blocs?

– ASEAN overtures to India and CER

ABAC Proposal for FTAAP (a “preferential APEC)

Key Role of NE Asia

% of world GDPNortheast Asia 20Japan 13.5China 4.0Korea 1.5

Southeast Asia 2Australasia 1.5

North America 36USA 32

APEC 61

Risks and Attractions of PTAs (1)

Risks well-known Trade and investment diversion Tendency to restrictive rules of origin Disadvantages of “hub and spoke” agreements Dangers of a “three bloc world” “stumbling blocks” or “building blocks” for

multilateral and APEC-wide liberalisation

Risks and Attractions of PTAs (2)

“Revealed preference” of governments for PTAs Faster progress? Easier political economy Address economy-specific concerns Reciprocation of binding commitments (unlike APEC) “Training” for unilateral or multilateral liberalisation Vehicles for delivery of regional public goods Reinforcing economic reforms Linkages to foreign policy and security objectives

Responses to the Proliferation of PTAs (1)

1) Priority to WTO Emphasise importance of successful DDA

outcome– Substantial MFN tariff reductions– More effective rules

Multilateral liberalisation reduces the negative effects of PTAs on excluded economues

Responses to the Proliferation of PTAs (2)

(2) Identify best practice – aim to minimise negative effects, maximise positive effects

contribute to APEC goals and more open multilateral trading system

PECC “Common Understanding” 2003 APEC “Best Practice for RTAs/FTAs in APEC”

Responses to the Proliferation of PTAs (3)

(3) Identify and promote the most economically beneficial PTA configurations

General conclusion: larger more inclusive configurations deliver the largest economic gains to members– ASEAN Plus Three in East Asia– FTAAP in Asia-Pacific region Question: is the objective East Asian integration or

Asia-Pacific integration?

Responses to the Proliferation of PTAs (4)

Welfare Effects of Alternative Trade Liberalisation Scenarios: Three Major Northeast Asian Economies

(Equivalent Variation: US$million)

-4000

0

4000

8000

12000

16000

ASEAN-China ASEAN-Japan ASEAN Plus 3FTA

FTAAP APEC MFN Global MFN

China

Japan

Korea

Responses to the Proliferation of PTAs (5)

Welfare Effects of Alternative Trade Liberalisation Scenarios: Southeast Asia, APEC Non-East Asia, and Non-APEC

(Equivalent Variation: US$million)

-20000

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

ASEAN-China ASEAN-Japan ASEAN Plus 3FTA

FTAAP APEC MFN Global MFN

Southeast Asia-6

APEC Non-East Asia

Non-APEC South America

Other Non-APEC

Responses to the Proliferation of PTAs (6)

East Asian v. Asia-Pacific Perspectives In East Asia, ASEAN Plus 3 FTA produces best economic

outcome for members, worst economic outcome for other APEC members– Move to FTAAP turns losses to gains for other APEC members and

yields greater gains overall– But not all ASEAN Plus Three economies gain more from FTAAP

Asia-Pacific v. Global Perspective In Asia-Pacific, FTAAP produces best economic outcome

for APEC members, worst for rest of world– Move to global liberalisation benefits most groups and yields

greatest gains overall potential to catalyse global liberalisation via WTO?

– But not all APEC members gain more from global liberalisation

Responses to the Proliferation of PTAs (6)

China v. NE Asian Perspectives Welfare gains from ASEAN Plus Three exceed those

from ASEAN Plus One initiatives for all three NE Asian economies– But gains for China from ASEAN Plus Three are modest– Substantial gains for China materialise with FTAAP

Gains from FTAAP substantially exceeds gains from ASEAN Plus Three for all 3 NE Asian economies

Further gains for China and Japan from global liberalisation but not for Japan

Recent Steps in Evolution of China’s Prospective PTA Links (1)

Steps towards E. Asian free trade Pre-2004

– China-ASEAN FTA negotiations commenced, China concluded bilateral PTA with Thailand

– China-Hong Kong CEPA concluded– Japan-Singapore PTA concluded– Japan commenced negotiations with Korea and Thailand

2004– China re-committed to plurilateral approach in China-ASEAN FTA– Conclusion of Japan-Philippine and Korea-Singapore FTAs– Japan also negotiating with Malaysia– Confirmation of E Asian summit in 2005

Remaining gaps in PTAs concluded or under negotiation– Japan/Korea link to China– Completion of Japan/Korea links with SE Asia

Recent Steps in Evolution of China’s Prospective PTA Links (2)

Additional steps towards W. Pacific free trade Pre-2004

– Singapore PTAs with Australia and New Zealand

2004– China announced FTA negotiations with NZ, foreshadowed

negotiations with Australia– Thailand PTAs concluded with Australia and New Zealand– Negotiations announced for AFTA-CER FTA

Additional remaining gaps in PTAs concluded or under negotiation– Japan/Korea links with Australia and New Zealand

Recent Steps in Evolution of China’s Prospective PTA Links (3)

Steps towards trans-Pacific free trade Pre-2004

– Conclusion of Singapore-US and Korea-Chile FTAs– Singapore-Canada and Singapore-Chile-NZ negotiations

under way 2004

– Conclusion of Japan-Mexico and US-Australia FTAs– Negotiations commenced for US-Thailand FTA– Announcement of China-Chile and Japan-Chile negotiations,

also Peru-Thailand? Principal remaining gaps in PTAs concluded or under

negotiation– Absence of proposals for NE Asia-N. America free trade

(except recently concluded Japan-Mexico FTA)