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A 3 bloc dance:East Asian regionalism and the North Atlantic

trade giantsRichard Baldwin and Theresa Carpenter

Graduate Institute, GenevaPresented by Theresa Carpenter

University of Sussex

14th September 2009

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Outline

1. Background facts

2. Current state of trade agreements in Asia

3. Asia talks with Europe and with the US

4. Some conjectures and scenarios

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Outline point 1. Background facts

Two facts and three unusual features• Fact #1: Rising economic importance of Asia:

– Current and future world share of GDP

• Fact #2: Intra-regional integration appears to be working

7.9%

7.9%

28.5%

2.4%

8.8%

27.7%

0% 5% 10% 15% 20% 25% 30% 35%

India

Germany

China

Japan

US

EU27

2004

2020

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Outline point 1. Background facts

Two facts and three unusual features• Feature #1:Factory Asia

– Parts and components sourced from all over Asia– Intra-regional trade is a result of Asia cooperating

with itself to produce goods with world-beating price-quality ratios

– Final destination of product – primarily EU and USASEAN+3 with itself

0

5

10

15

20

25

30

35

40

45

50

1990 1995 2000 2005

Export Share (%) Import Share (%)

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Outline point 1. Background facts

Two facts and three unusual features• Feature #2: Preferential trade liberalisation not

a major feature in the region

Shares of intra-ASEAN trade0% 5% 10% 15% 20% 25% 30%

Rubber and articles thereof

Instruments; parts & accessories (HS90)

Articles of iron or steel

Copper and articles thereof

Vehicles; parts and accessories (HS87)

Organic chemicals

Plastics and articles thereof

Machinery and mechanical appliances; parts thereof (HS 84)

Fuels (HS27)

Electric machinery, equipment and parts; sound equipment;television equipment (HS85)

All other goods

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Outline point 1. Background facts

Two facts and three unusual features

• Feature #3: No regional leader

Import share MFN duty

free (non-ag)

MFN bound

tariff rate (non-ag)

MFN applied

tariff rate (non-ag)

MFN binding coverage

MFN bound tariff

rate (all goods)

MFN applied tariff

rate (all goods)

Indonesia 55% 36% 7% 97% 37% 7%

Philippines 49% 23% 6% 67% 26% 6%

Thailand 49% 26% 8% 75% 28% 10%

Malaysia 78% 15% 8% 84% 25% 8%

China 44% 9% 9% 100% 10% 10%

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Outline point 2. Current Regional Trade Agreements in Asia

Regionalism in Asia• How we got here

– An Asian verion of the Domino Theory of regionalism (Baldwin)

• The “Noodle Bowl” simplified

• Asia beyond East Asia

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Outline point 2. Current Regional Trade Agreements in Asia

How we got here – the Domino Theory• Phase I: Mid 1980’s

– Setting up “Factory Asia”, ie, fragmentation, offshoring, cross-national production chains

• Phase II: 1990-2000– Opening of China– Deepening of “Factory Asia”

• Phase III: Invitation from China to ASEAN– Negotiate a China-ASEAN FTA – Triggered a domino effect throughout East Asia and

beyond

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Trade agreements in AsiaActual and prospective

Maldives PakistanChile, Hong Kong, Chinese Taipei

Papua New Guinea, Peru, Russia

BruneiPhilippinesVietnamMalaysia, SingaporeIndonesia

APEC (FTAAP)

ASEAN + 6 (CEPEA)

ASEAN + 3 (EAFTA)

ASEAN (AFTA)

APTA

Bhutan Nepal

BIMSTEC FTASAARC (SAFTA)

BangladeshSri Lanka

Japan Korea, China

Northeast Asian FTA

India

USMexicoCanada

NAFTA

Australia New Zealand

ANZCERTA

Myanmar

Laos

ThailandCambodia

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Trade agreements in AsiaOperative as of 2006

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Outline point 2. Current Regional Trade Agreements in Asia

The Noodle Bowl simplified• East-Asian agreements are complex

– Over 100 either in force, signed or being negotiated

• Stand back to see a clearer picture– Agreements involving Singapore– China-Hong Kong and China-Macao

• Agreements where bilateral flows are small complicate the picture

• Focus on important flows where there is discrimination against third parties, to reveal the bicycle picture

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Outline point 2. Current Regional Trade Agreements in Asia

“Noodle bowl” simplified – East Asian Bicycle picture

KoreaKorea

JapanJapan

ChinaChina

ThailandThailand

MalaysiaMalaysia

IndonesiaIndonesia

PhilippinesPhilippines

Noodle bowl simplified, 2005: FTAs where bilateral trade is > 1% intra-East Asian trade*

MyanmarMyanmar

VietnamVietnam

CambodiaCambodia

LaosLaos

SingaporeSingapore BruneiBrunei

HK & MacaoHK & Macao

* Singapore FTAs excluded.

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Outline point 2. Current Regional Trade Agreements in Asia

Four pillars of East Asian regionalism• Japan-ASEAN bilaterals

• China-ASEAN FTA

• Korea-ASEAN FTA

• AFTA

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Outline point 2. Current Regional Trade Agreements in Asia

Four pillars, four insights into PE forces• China-ASEAN FTA

– complex

• Japan-ASEAN bilaterals– Japan-Malaysia precedent: the rice exclusion

• Korea-ASEAN FTA– Playing catch-up

• Japan-Korea talks deadlocked

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Outline point 3: Asian talks with Europe and with the US

Understanding the talks• EFTA-ASIA talks

– Proceeding rapidly (EFTA-Korea, EFTA-singapore)

• EU-ASIA talks– Talking with ASEAN as a whole, but complicated

due to Myanmar. Dual-track solution• Negotiate with ASEAN as a whole (slowly)• Negotiate with some individual ASEAN fasttrack

– Exclude agriculture?

• The US and Asia– Talks

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Outline point 3: Asian talks with Europe and with the US

Asia-US talks• Bush Administration – ambitions FTA agenda

– Talks concluded with Singapore Australia and Korea, first two in place, but US-Korea in trouble

• US-ASEAN talks– US is talking with some ASEAN countries, but

difficult due to US template approach• Trade in agriculture, government procurement, conditions

on labour and the evnironment• Observers think that progress is unlikely

• US-Asia and EU-Asia talks are characterised by quite different political economy forces– Different outcomes are possible

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Outline point 4. Scenarios and conjecture

Possible scenarios• All planned FTAs work

• EU-Asia works, but US-Asia does not

• Neither EU-Asia or US-Asia works

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Outline point 4. Scenarios and conjecture

Possible scenarios• All planned FTAs work

• EU-Asia works, but US-Asia does not

• Neither EU-Asia or US-Asia works

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Closing remarks• 3 blocs, “dancing”

• If some of the initiatives succeed:– Discrimination– Domino effect

• US an outsider?– Push for global trade in industrial goods?

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Thank you for listening

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Outline point 1. “Why the WTO should act”

Three facts & an implication• Fact #1: The world trade system is marked by a

motley assortment of discriminatory trade agreements; ‘spaghetti bowl’.

BahamasHaiti

USACanada

UruguayParaguay

Argentina

Brazil

Chile

BoliviaEcuadorPeru

Venezuela

Colombia

Panama

Nicaragua

Costa Rica

El SalvadorGuatemalaHonduras

Dominican Republic

Trinidad &TobagoDominica, Suriname,

Jamaica, St. Lucia, Belize,St. Kitts & Nevis, Grenada, Barbados,Guyana, St. Vincent & the Grenadines,Antigua & Barbuda

CAFTA

US-ChileMERCOSUR

AC

CARICOM

CACM

ALADI

EUKorea

Japan

China

Thailand

US-ANDEAN FTA

Singapore

Australia

Canada-CA-4

Mexico

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Outline point 1. “Why the WTO should act”

Three facts & an implication• Implication:

• Spaghetti bowl’s inefficiencies and unfairness are increasing:– Production unbundling: **Key novelty**– Rapid growth of FTAs

• World must find a solution.

• Regionalism is here to stay, so solution must work with existing regionalism, not against it.

• The solution must multilateralise regionalism.

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PECS, or ‘Single List’rules

CACM rules

ASEANrules

LAIA & LAIA-like rules in Mercosur

Caribbean: Antigua & Barbuda, Bahamas, Barbados, Belize, Dominica, Dominican Rep., Grenada, Guyana, Haiti, Jamaica, St Lucia, St Vincent, St. Ch. & Nevis, Surinam, Trinidad & TobagoPacific: Cook Is., Fed. Micron., Fiji, Kiribati, Marshall Is., Nauru, Niue, Palau, Papua N. G., Samoa, Solomon Is., Tonga, Tuvalu, Vanuatu

EU’s GSPrecipients

Guatemala

Ukraine

ArgentinaGeorgia

PhilippinesSri LankaChile

Costa RicaNicaragua

HondurasEl Salvador

Panama

Bolivia

Mongolia

Moldova

VietnamIndonesiaMalaysia

Greenland

BrazilUruguay

Oman

CubaMaldives

Bangladesh

Venezuela

Myanmar

Azerbaijan

BelarusBosnia & Herzegovina

ChinaIran

Kyrgyzstan

Saudi Arabia

Turkmenistan

Uzbekistan

KazakhstanAruba

Gibraltar

PeruEcuador

Colombia

IraqTajikistanMacao

QatarThailandKuwait

LibyaRussia

Yemen

India

Laos

Afghanistan

NepalBhutan

Cambodia

BermudaAnguilla

Tokelau

Armenia

Bahrain

PakistanParaguay

U.A.E

ACP Nations (ex. Africa)

Outline point 2. “Ideas for a WTO Action Plan on Regionalism”

Taming rules-of-origin tangle: Background

SADC’s PECS-like rules

‘Families’ of rules-of-origin

NAFTA & NAFTA-like rules

African ACP Nations + EU bilaterals

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Outline point 2. “Ideas for a WTO Action Plan on Regionalism”

More development-friendly regionalism• Make regionalism more development friendly:

– Establish WTO advisory services and/or a Centre on RTAs for developing nations.

• Create scope for development-friendly rules of origin by encouraging nations to expand the cumulation zone of their RTAs to include as many developing country partners as possible.

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Outline point 3. “Implications for Asia”

Facts & trends in Asia• ‘Noodle bowl’ in Asia

– AFTA, ASEAN+1’s, Japan’s bilaterals– Korea, Thailand, Singapore extra-regional RTAs– More EFTA & new EU agreements– More US bilaterals?– ASEAN+3, ASEAN+6

• Overlapping rules of origin a problem.– ASEAN ROOs are not used much, yet.– NAFTA-like ROOs coming to Asia via extra-regional

FTAs (Chile, Mexico, Peru, US)– PECS ROOs coming to Asia via EU deals?

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Outline point 3. “Implications for Asia”

Ongoing multilateralisation• Completion and deepening of AFTA & its

spread to the ASEAN+1’s is turning noodles into lasagna plates.– Consider expanding cumulation zone at least most

goods.

• Rules of origin:– Danger that NAFTA-like rules becomes the de facto

standard in East Asia.• most complex and protectionist in the world.

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Outline point 3. “Implications for Asia”

Ideas for Asian multilateralisation• Problem: Lack of regional coordination.

– Strengthen ASEAN’s Secretariat’s capacity.

• Problem: overlapping ROOs.– Idea: follow CACM/CAFTA example = – Either/Or rules-of-origin, ASEAN or NAFTA.

• Form an East Asian coalition to participate talks on regional harmonisation of ROOs.

• Form an East Asian coalition to make the system of Asian ROOs more development friendly.

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Outline point 3. “Implications for Asia”

Ideas for Asian multilateralisation• Well functioning WTO system is critical to all

East Asian economies.– Much free riding to date.

• East Asia’s positive experience with taming the tangle gives it a natural position in negotiating the WTO Action Plan on Regionalism.– Participation of ADB, ASEAN Secretariat & National

governments

• Support for WTO is a topic that should overcome regional differences.