Are Regional Trade Agreements in Asia Stumbling or Building Blocks? Some Implications for the Mekong-3 Countries

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Is the recent proliferation of Regional Trade Agreements (RTAs) in Asia a healthy development, or runs the risk of turning into an unmanageable "noodle bowl" in the future? The goal of this paper is to shed some light on this question. The results show that membership in the Asian RTAs considered in this study have not, to date, occurred at the expense of trade with nonmembers, as most Asian countries' integration with the global economy preceded regional integration. However, looking forward, given their discriminatory nature, a proliferation of RTAs, which is not accompanied by continuing unilateral and multilateral liberalization, could run the risk of leading to costly trade diversion.

Consequence of Regional Trade Agreements to Developing Countries

“…: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka Tumbarello (2007) found import and export trade creation, but our pooled regression indicates intra-bloc trade diversion and import trade diversion. According to our results, SAPTA does not seem to have fostered trade flows among members to any greater extent than trade with non-members.…”

“…With regard to estimated intra-bloc trade creation, export trade creation/diversion, and import trade creation/diversion, the empirical literature has not reached any consensus. For instance, the ASEAN trade bloc has been found to generate both intra-trade creation (Endoh, 2000;Carrère, 2004;Elliott and lkemoto, 2004) and intra-trade diversion Tumbarello, 2007 Endoh (1999) OLS 1960~1994 CMEA:…”

“…Furthermore, the outcome of a trade dispute between two members has the potential to spill over to other countries in regional trade relations. In the absence of a regional dispute settlement mechanism, there is a potential risk of disruption in intra-regional trade (Tumbarello, 2007). 4 Hamilton and Winters (1992) have observed that many small RTAs made up of low and middle income countries have little effect on world trade flows.…”

“…Finally, there has been concern that RTAs would become a substitute for multilateral liberalization. If this takes place, increased protection of vested interests could turn the agreements into closed blocs, discouraging multilateralism, and distorting the pattern of international trade (Tumbarello, 2007).…”

Regional Economic Integration and Multilateralism: The Case of the ASEAN-Australia-New Zealand FTA and the Malaysia-New Zealand FTA

“…It has been widely remarked that early PTAs in Asia and the Pacific have failed to comprehensively liberalize the agriculture sector as a consequence of domestic sensitivities (Plummer 2007, Tumbarello 2007, Freund and Ornelas 2010. Certainly, many PTAs concluded in the region either exclude entire supposedly "sensitive" agricultural subsectors from the PTA altogether (e.g., the ASEAN-India FTA), or exclude particular products (Japan-Philippines Economic Partnership Agreement) or devise ways in which to limit the impact of the PTA, including by not fully liberalizing (i.e., reducing to zero) the tariffs on a range of agricultural products (ASEAN-PRC FTA, Japan-Malaysia FTA, etc.).…”