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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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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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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.