Dean and CEO, Asian Development Bank Institute
Principal Economist, Office of Regional Economic Integration, Asian Development Bank
The inability to conclude the World Trade Organization (WTO) Doha Development Round has spawned a proliferation of bilateral and plurilateral free trade agreements (FTAs) across the globe. While East Asia is a relative newcomer to FTAs, the region has seen a dramatic increase in the number of such agreements in recent years. The explosion of FTAs in East Asia, led by the large economies of Northeast Asia—the People’s Republic of China (PRC), Japan, and the Republic of Korea (ROK)—is tied to the need to support sophisticated production networks through continued trade and investment liberalization, while also serving as a defensive response to the spread of FTAs elsewhere in the world.
A lively debate over the impact of FTAs on business in the region has resulted from their proliferation (see Baldwin 2006, Chia 2010). Data from East Asian exporters on FTA utilization were lacking prior to an Asian Development Bank (ADB) firm-level multi-country survey conducted in 2007/08. The survey results suggest that FTAs are indeed bolstering trade among firms, despite some concerns expressed over restrictive rules of origin (ROOs), particularly as economic recovery takes hold in the wake of declining trade volumes and nascent protectionism triggered by the recent global economic crisis. Governments can facilitate the increased use of FTAs by actively disseminating information to firms on existing FTAs and adopting best practices in designing future FTAs, including ROOs.
East Asian economies are using FTAs to aggressively pursue their individual and collective trade strategies, leading to the expansion of advanced production networks across the region with hubs in Japan and the PRC. Rather than complicating efforts toward a Doha Round agreement, a region-wide FTA can contribute to laying the foundation for such an agreement.
This brief is set out as follows. It begins by discussing East Asia’s emergence as a global factory and the spread of FTAs. It then examines varieties of national FTA strategies in Northeast and Southeast Asia. The brief goes on to analyze information on FTA use, impediments, and ROOs based on the ADB multi-country survey. Finally, it explores a possible way forward, highlighting short-term measures as well as a region-wide FTA for the medium term. Read more…