A 3 bloc dance:
East Asian regionalism and the North Atlantic
trade giants
Richard Baldwin and Theresa Carpenter
Graduate Institute, Geneva
Presented by Theresa Carpenter
University of Sussex
14th September 2009
1
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
2
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
EU27
27.7%
US
28.5%
Japan
2004
2020
8.8%
China
7.9%
Germany
7.9%
India
2.4%
0%
5%
10%
15%
20%
25%
30%
35%
• Fact #2: Intra-regional integration appears to be
working
3
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 US
ASEAN+3 with itself
50
45
Export Share (%)
Import Share (%)
40
35
30
25
20
15
10
5
0
1990
1995
2000
2005
4
Outline point 1. Background facts
Two facts and three unusual features
• Feature #2: Preferential trade liberalisation not
a major feature in the region
All other goods
Electric machinery, equipment and parts; sound equipment;
television equipment (HS85)
Fuels (HS27)
Machinery and mechanical appliances; parts thereof (HS 84)
Plastics and articles thereof
Organic chemicals
Vehicles; parts and accessories (HS87)
Copper and articles thereof
Articles of iron or steel
Instruments; parts & accessories (HS90)
Rubber and articles thereof
0%
5%
10%
25%
20%
15%
Shares of intra-ASEAN trade
30%
5
Outline point 1. Background facts
Two facts and three unusual features
Indonesia
Philippines
Thailand
Malaysia
China
Import share
MFN duty
free (non-ag)
55%
49%
49%
78%
44%
MFN
bound
tariff rate
(non-ag)
36%
23%
26%
15%
9%
MFN
applied
tariff rate
(non-ag)
7%
6%
8%
8%
9%
MFN
MFN
bound applied
tariff
tariff
MFN
binding rate (all rate (all
coverage goods) goods)
7%
37%
97%
6%
26%
67%
10%
28%
75%
8%
25%
84%
10%
10%
100%
• Feature #3: No regional leader
6
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
7
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
8
Trade agreements in Asia
Actual and prospective
APEC (FTAAP)
NAFTA
BIMSTEC FTA
US
Mexico
Canada
SAARC
(SAFTA)
APTA
Bangladesh
Sri Lanka
Chile, Hong Kong, Chinese Taipei
Papua New Guinea, Peru, Russia
ASEAN + 6 (CEPEA)
Bhutan
Nepal
Maldives
Pakistan
India
ASEAN + 3 (EAFTA)
ANZCERTA
Australia
New Zealand
Northeast Asian FTA
Japan
Korea, China
ASEAN (AFTA)
Brunei
Philippines
Vietnam
Malaysia, Singapore
Indonesia
Laos
Thailand
Myanmar
Cambodia
9
Trade agreements in Asia
Operative as of 2006
10
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
11
Outline point 2. Current Regional Trade Agreements in Asia
“Noodle bowl” simplified – East Asian Bicycle picture
Noodle bowl simplified, 2005: FTAs where
bilateral trade is > 1% intra-East Asian trade*
China
Japan
HK & Macao
Korea
Myanmar
Cambodia
Philippines
Thailand
Indonesia
Laos
Vietnam
Singapore
Brunei
Malaysia
* Singapore FTAs excluded.
12
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
13
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
14
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
15
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
16
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
17
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
18
Closing remarks
• 3 blocs, “dancing”
• If some of the initiatives succeed:
– Discrimination
– Domino effect
• US an outsider?
– Push for global trade in industrial goods?
19
Thank you for listening
20
21
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’.
Japan
Bahamas
Haiti
Korea
USA
China
CAFTA
Nicaragua
CACM
EU
Canada
US-Chile
Canada-CA-4
Costa Rica
MERCOSUR
Paraguay
Uruguay
Mexico
Chile
Brazil
El Salvador
Guatemala
Honduras
Argentina
Panama
Dominican
Republic
US-ANDEAN FTA
CARICOM
Trinidad &
Dominica, Suriname,
Tobago
Jamaica, St. Lucia, Belize,
St. Kitts & Nevis, Grenada, Barbados,
Guyana, St. Vincent & the Grenadines,
Antigua & Barbuda
Colombia
Peru
Venezuela
Australia
Bolivia
AC
Thailand
Singapore
Ecuador
ALADI
22
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.
23
Outline point 2. “Ideas for a WTO Action Plan on Regionalism”
Taming rules-of-origin tangle: Background
‘Families’ of rules-of-origin
ACP Nations (ex. Africa)
NAFTA &
NAFTA-like
rules
PECS, or
‘Single List’
rules
CACM rules
ASEAN
rules
African ACP
Nations + EU
bilaterals
LAIA & LAIA-like
rules in Mercosur
SADC’s
PECS-like
rules
Caribbean: Antigua & Barbuda, Bahamas,
Barbados, Belize, Dominica, Dominican Rep.,
Grenada, Guyana, Haiti, Jamaica, St Lucia, St
Vincent, St. Ch. & Nevis, Surinam, Trinidad &
Tobago
Pacific: Cook Is., Fed. Micron., Fiji, Kiribati,
Marshall Is., Nauru, Niue, Palau, Papua N. G.,
Samoa, Solomon Is., Tonga, Tuvalu, Vanuatu
Afghanistan
Cambodia
Nepal
Bhutan
Yemen
Laos
Tokelau
India
Bermuda
Anguilla
Russia
Libya
Armenia
Pakistan
Paraguay
Bahrain
U.A.E
Qatar
Thailand
Kuwait
EU’s GSP Macao
Tajikistan
recipients
Iraq
Ecuador
Mongolia
Peru
Malaysia
Colombia
Indonesia
Iran
Vietnam
China
Greenland
Kyrgyzstan Moldova
Myanmar
Panama
Uzbekistan Guatemala
Gibraltar
Honduras
Belarus
El Salvador
Bosnia &
Nicaragua
Herzegovina Costa Rica
Saudi Arabia Bolivia
Aruba
Chile
Kazakhstan Sri Lanka
Azerbaijan Philippines
Turkmenistan Argentina
Bangladesh Georgia
Cuba
Ukraine
Maldives
Brazil
Venezuela
Uruguay
Oman
24
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.
25
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?
26
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.
27
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.
28
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.
29