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ASEAN+3/+6 or TPP? Pathways Towards East Asian FTA Consolidation. Ganeshan Wignaraja Principal Economist Asian Development Bank gwignaraja@adb.org Washington, D.C. February 2011. Messages. Asia’s trade rebounding; regional integration picking up

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Asean 3 6 or tpp pathways towards east asian fta consolidation l.jpg

ASEAN+3/+6 or TPP? Pathways Towards East Asian FTA Consolidation

Ganeshan Wignaraja

Principal Economist

Asian Development Bank

gwignaraja@adb.org

Washington, D.C.

February 2011


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Messages

  • Asia’s trade rebounding; regional integration picking up

  • Firms see net FTA benefits and more FTA use in East Asia but challenges remain.

  • Asia-wide FTA can increase market access, reduce noodle bowl risk & facilitate Doha deal.

  • Different reasons make either ASEAN+3/+6 or TPP more attractive

  • Reality may be a series of linked agreements with variable coverage of members and issues


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Asia Rebounding from Crisis

(GDP growth rate, % per year)

Note: 2010 and 2011 data are forecasts. Developing Asia refers to 44 developing member economies of the Asian Development Bank and Brunei Darussalam, an unclassified regional member

Sources: ADB, Asian Development Outlook 2010 (September 2010 Update); Asia Economic Monitor (December 2010)

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Rapid Spread of FTAs in East Asia*

(Number of concluded FTAs by country)**

49 FTAs in effect

Source: ADB’s Asia Regional Integration Center (ARIC) FTA Database (www.aric.adb.org), data as of January 2011.

Note: *East Asia refers to the 10 ASEAN countries, PRC, Hong Kong,China, Japan, Korea, Taipei,China.

**Concluded FTAs include those that are in effect and those that have been signed but are not yet in effect.

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Sample

  • 841 firms in 6 countries (PRC, Japan, Korea, Singapore, Thailand, Philippines)

  • Sectors: electronics, automobiles, textiles and garments and country specific sector

  • Simple random sampling method

  • Size - 33% SMEs

  • Ownership – 40% foreign-owned


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Key questions

  • Are FTA preferences being used?

  • What are the benefits and costs of FTAs for firms?

  • Are multiple rules of origin (ROOs) a burden on firms?

  • Is there enough business support for domestic firms to utilize trade preferences under FTAs?


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FTA use higher than expected (28.4%) and may increase in future (53.2%).


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Profile of Users and Non-Users of FTAs*

Firm size: Users in all five countries are significantly larger than the non-users

Ownership: Users in Japan & Thailand have significantly higher share of foreign equity than non-users

Age of firm: Users in Thailand & Philippines are significantly older than non-users

Awareness of FTA provisions: Users in Japan, Singapore, PRC, and Thailand are significantly more knowledgeable of FTA provisions that affect their business than non-users

Responsiveness to FTAs: Users in all five countries are significantly more likely to have changed business plans in response to FTAs

Notes: * Findings based on t-tests between samples of users and non-users of FTA preferences excluding Korea.

Only findings with significant differences between the two groups are shown.


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Firms report more benefits than costs from major FTAs in effect

* excludes Korea


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Impediments to Using FTA Preferences

(% of responding firms)


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Multiple ROOs impose limited burden

(% of responding firms that reported multiple ROOs add to costs)

Only 20.1% of firms find multiple ROOs costly to business.


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Huge demand for FTA support services

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A Possible Way Forward?

  • Rationalize ROOs, adopting co-equals for ROOs, upgrade ROO admin. Harmonizing regional ROOs

  • Improve business support for FTAs

  • Consolidate FTAs into a comprehensive region-wide FTA (either ASEAN+3 or +6)

  • Multilateralizing Asian regionalism

  • Concluding Doha Round and avoiding protectionism

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A Region-Wide FTA would …..

Increase market access for goods, services, skills and technology.

Increase market size – specialization and economies and scale.

Easier FDI flows by MNCs and technology transfer.

Simpler tariff schedules, rules and standards.

Offer an insurance against protectionist sentiments that pose a risk to Asia’s trade and recovery.

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Larger Grouping, Increasing Gains

Change in income compared to 2017 baseline, %

  • Region-wide FTA offers larger gains to world income than the current bilateral FTAs.

  • CEPEA scenario offers larger gains than the EAFTA scenario.

  • Third parties lose little from being excluded from a region-wide agreement.

CEPEATotal Gains: 260 $BN

EAFTA Total Gains: 214 $BN

ASEAN-PRC Total Gains: 82 $BN

Source: Kawai and Wignaraja (2009) ), estimated from CGE model in Francois and Wignaraja (2008).

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ASEAN+ vs. TPPGoods Market Liberalization

(EV/GDP %)

Note: *TPP 11 = Brunei, Chile, New Zealand, Singapore, Viet Nam, Malaysia, Peru, Australia, USA, Japan, Korea

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Source: Wignaraja and Mirza (forthcoming)


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Likely Scenario

Any region-wide FTA – series of linked agreements with variable coverage of members and issues.

For now, 2 competing processes

ASEAN + 3 or +6

Trans Pacific Partnership (TPP) agreement

For ASEAN+3/+6 FTA, a PRC-Japan-Korea FTA needed and connected with ASEAN+1 FTAs.

TPP – early step towards APEC-wide FTA, but will unlikely include a US-PRC FTA

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Way Forward

Biggest challenge lies in political will and geopolitical considerations in moving forward on ASEAN+3/+6 and TPP.

Different reasons make either ASEAN+3/+6 or TPP more attractive.

Whichever taken, integration should be deepened and domestic reforms pursued.

A harmonious region will likely see convergence between two processes as building blocks– win-win for Asia-Pacific Community.

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Selected References

1. Masahiro Kawai and Ganeshan Wignaraja (eds. 2011) Asia’s Free Trade Agreements: How is Business Responding? Cheltenham (UK) Edward Elgar .

Read-only PDF of is available at:

http://www.adbi.org/files/2011.01.31.book.asia.free.trade.agreements.pdf

2. Masahiro Kawai and Ganeshan Wignaraja, (2011), “Asian FTAs: Trends, Prospects and Challenges”, Journal of Asian Economics, February.

3. Masahiro Kawai and Ganeshan Wignaraja, (2010), Free Trade Agreements in East Asia: A Way Toward Trade Liberalization?: http://www.adb.org/documents/briefs/ADB-Briefs-2010-1-Free-Trade-Agreements.pdf


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Masahiro Kawai

Dean and CEO, ADBI

Ganeshan Wignaraja

Principal Economist,

OREI - ADB


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