Role of Regional Trade Role of Regional Trade Agreements with Specific Focus Agreements with Specific Focus

on the Asia-Pacific Trade on the Asia-Pacific Trade AgreementAgreement

Tiziana BonapaceChief, Trade Policy Section

Trade and Investment Division, UNESCAP

International Workshop on “Central Asia and China:Economic Relations, Current Situation and

Prospects”11-12 July 2006, Siam City Hotel, Bangkok

RTAs in Asia and the PacificRTAs in Asia and the Pacific

Trade agreements signed in Asia and the Pacific

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Evolution of Asia-Pacific Regionalism

Broadly 3 waves

First wave (50s/60s/70s):– 1950 Conference on Asian/African cooperation in Bandung,

Indonesia, the precursor of the non-aligned movement.

– Import-substitution industrialization strategy becomes development model. South-South cooperation based on strategic selection of tariff liberalization among members to promote industrialization. Inward looking with high tariff walls to keep out imports competing with “infant industries”.

– First RTA signed in 1975: Bangkok Agreement

Second wave (80s/90s): – unsustainability of import-substitution model, globalization

accelerates and results in north/south interdependence. Outward-oriented, “open regionalism” i.e. faster liberalization among RTA “friends” while at the same time lowering barriers to third parties

Second wave: – Establishment of APEC based on non-discriminatory

principles in its strictest interpretation, conclusion of UR

– Rapid increase in membership to GATT/WTO. – Regionalism and multilateralism enter golden age of

mutually supportive liberalization

Third wave (Late 1990s-present): – financial crisis– stalling of APEC process of liberalization – stalwarts of MFN (Japan and Rok) turn regional, as well

as China who completes most difficult part of internal transformation.

– New era of deep and wide economic partnership agreements, with FTA as core, but much wider economic cooperation as well

– Bilateralism is key feature

Evolution of Asia-Pacific Regionalism

Belarus*Russian

Federation

ASEAN

Cambodia

APECBrunei DarussalamIndonesiaMalaysia Chile*Philippines Hong Kong, ChinaSingapore JapanViet Nam Mexico*

Russian FederationTaiwan Province of China*United States of AmericaCanada*Peru*

BIMST-EC

BhutanNepal

Myanmar

Thailand

APTA

BangladeshIndiaSri Lanka

PICTA

Cook IslandsKiribatiNauruNiueSamoaTonga

ChinaRepublic of Korea

ANZCERTA

New Zealand

Australia

ECOTA

AfghanistanAzerbaijanIran (Islamic

Republic of)TurkeyTurkmenistan

Melanesian Spearhead GroupPapua New Guinea

FijiSolomon IslandsVanuatu

Main regional integration arrangements of UNESCAP membersand associate members

Pakistan

Lao People’s Democratic Republic

Line refers to some of the major bilateral agreements (country-to-country or bloc-to-country) in force or under negotiation

Block refers to regional arrangements

SAFTA

Maldives

CAEU

KazakhstanKyrgyzstanTajikistan

Uzbekistan

* Belarus, Chile, Canada, Mexico and Peru are not ESCAP members or associated members

EEC

ArmeniaGeorgia

Source: UNESCAP Secretariat

Where Does Asia-Pacific Stand?: New Age Regionalism

Despite density of agreements, concluded agreements are generally ‘lite’, particularly those among developing countries

liberalization shifted to future (10 years or more)significant exceptions in goodsrules of origin restrictive services not coveredinvestments covered, but focus more on investor protection than locking in investment liberalizationdispute resolution mechanisms not well defined

However, agreements involving developing and developed countries much more comprehensive.

services, TRIPs, investments and other WTO+ features are prominent increasing public concern regarding asymmetric negotiating powerscalls for greater democratization of trade policy formulation: strengthened consultative mechanisms (bottom-up), increased role for parliamentarians as interface between societies and policy making executive branch

Where Does Asia-Pacific Stand?: New Age Regionalism

Other forms of regional economic cooperation also continue

Growth triangles/quadrangles, EPZs, SEZs

Many forms: intergovernmental/private sector driven

Common themes: riparian cooperation, transport corridors, energy selfsufficiency.

Where Does Central Asian Regionalism Stand?

Numerous economic cooperation schemes and BTAs/RTAs.

Renewal of economic cooperation after collapse of USSR

WTO membership a priority for most. Also allows regional integration to proceed more effectively Armenia, Georgia, Kyrgyzstan

SPECA – Economic Cooperation Programme by 2 UN regional Commissions: ESCAP + ECE

Where Does Asia-Pacific Stand?: New Age Regionalism and the Contagion Effect

Domino effectFear of marginalization (not being able to share benefits of membership) as more and more countries become members of FTA Originally used to explain successive waves of EU expansionFatigue with multilateralism Disenchantment with APEC as a driver of liberalization, Aftermath of 1997 financial crisis and disappointment with global response and policy prescriptions: few countries untouched, rekindled common destiny bonds and regional identityTurning point: ASEAN+China+Japan+RoK, Singapore took lead in BTAs

Competitive regionalismSecure trade interests and establish sphere of influence that goes beyond tradeUnited States now trend setter, also Japan. Used as strategy to pressure non-members to join or enter into broader trade agreements

Defensive and offensive mutually reinforcing strategies at play

New Age Regionalism: Where is Asia-Pacific Going?

At what configuration will this process come to rest?

Emergence of natural hubs: large trading country establishing trade hegemony, linked to a series of spokes (developing countries)

A developing country hub may also emerge: a defensive hub seeking to avoid spoke position with trade hegemon

Mulilayered strata of hubs and spokes emerging

Through time, gravitational force of one hub linked to rest of region through spokes may be final resting point

New Age Regionalism: Where is Asia-Pacific Going?

Role of ASEAN: option of developing countries collectively establishing themselves as alternative hub? Has ASEAN managed to overcome internal differences associated with its diverse membership? Can ASEAN move from shallow to deep integration?

Spinning top - centrifugal force driven by an inertia – at the center- that acts outwards and draws energy from a body moving about the center. How can the force be directed towards the center? Can the ASEAN Charter, or the dynamism of +1+1+1 countries, or a conclusion of the Doha Round impart the energy needed for ASEAN to harmonize policies and achieve deep integration?

Policy Implications and Negotiating Strategies

To promote trade for development, there is a need for geographical and functional harmonization and consolidation of the many RTAs through.…

…the establishment of common principles, practices, and operational procedures for liberalization initiatives, in both trade and investment

As a first step, start with a comprehensive framework on RoO

A.Geographical ConsolidationHistorical conflicts, wide variations in political, legal systems, cultural values. Fear that integration will become dysfunctional.

Expansion of EU membership a positive example of geographical consolidation. More than 65 bilateral trade agreements notified to WTO abrogated when EU expanded

Crucial differences between EU and Asia

Customs Union vs FTAs. Geographical proximity much more relevant for CU than FTAs. No example of CU among geographically dispersed countries such as in cross continental BTAs of Asia

Is Customs Union with common external trade policy and deep integration sine qua non for geographical consolidation?

New Age Regionalism: Where is Asia-Pacific Going?

Integrating East, South-east and Central Asia ECOTA Afghanistan Islamic Rep. of Iran

Turkmenistan

Note: WTO members are in italics.Armenia, Moldova, Ukraine: Observer Status of EurAsEC

China

ECOTA AfghanistanIslamic Rep. of Iran

Turkmenistan

BSECGeorgia

(Albania, Bulgaria, Greece, Romania)

ECOTA AfghanistanIslamic Rep. of Iran

Turkmenistan

KazakhstanKyrgyzstanTajikistan

Uzbekistan Azerbaijan

SCO

Turkey

AFTA+Japan

Thailand

Indonesia Malaysia Philippines Brunei Darussalam Singapore Viet Nam Cambodia

Myanmar

Maldives

Nepal

Pakistan

BIMSTEC

IndiaBangladeshSri Lanka

APTA

+ China

+Republic of Korea

Lao PDR

Bhutan

Armenia

Russian Federation

EurAsEC

Belarus

MoldovaUkraine

CIS EU

SAFTA

B. Functional cooperation and consolidation

Asia-Pacific could also evolve its own form of consolidation, based on pragmatism, flexibility and outward orientation which have served the region well up to now

Adoption of common framework of principles, practices and procedures that puts regionalism as a building block of multilateralism on a more solid and commonly shared foundation

Rules of origin one key area. APTA representing a wide spectrum of industrial development across the region has evolved a set of common rules of origin, based on flat percentage rate 45 per cent (35 per cent for LDCs) local content that may imply an acceptable commonality

Investment (proliferation of BITs) and coherence with investment provisions in BTAs?

New Age Regionalism: Where is Asia-Pacific Going?

C. Integration through enhanced institutionsNumerous regional organizations such as UNESCAP, ADB, ASEAN, SAARC APEC, Pacific Forum Secretariat are in good position to draw out commonalities and work on common principles, best practices, modal agreements.

Bold mandates and resources lacking, and more importantly, these institutions are intergovernmental, member driven

Is there a need for a more formal supranational system of regional governance or are current intergovernmental institutions sufficient?

Can institution driven integration of EU offer useful example?

Need for balancing vision with realism: more effective use of existing institutions. Cost effectiveness of creating new institutions?

Deep policy, political and historical differences among countries of the region might prevent supranational governance?

New Age Regionalism: Where is Asia-Pacific Going?

Signed in 1975 as an initiative of UNESCAP, the Bangkok Agreement, now APTA, is Asia’s oldest preferential trade agreement between developing countries.

It aims to promote regional trade through an exchange of mutually-agreed concessions.

Bangladesh, China, India, Republic of Korea, Lao PDR and Sri Lanka are member countries.

APTA: A Bridge across Asia

Region-wide membership potential

Only RTA in which two most populous and fastest growing economies are members (i.e. China and India)

Through China and India linkages with other RTAs in the region can be established (e.g. AFTA, BIMSTEC, SAFTA)

Expanding Membership

Status: China’s accession in particular makes membership more attractive to countries in the region

Efforts are being taken to expand membership. Mongolia and Pakistan have indicated intention to join, others have expressed interest

Next target: Central Asia

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