Free Trade Agreements versus Customs Unions: An Examination of East Asia

The spaghetti bowl phenomenon expected from the proliferating East Asian regional trade agreements (RTAs) is worrisome. In particular, the complicated web of hub-and-spoke type of overlapping free trade agreements (FTAs) can result in high costs for verifying rules of origin. As an alternative policy option to avoid the negative effect of trade deflection, customs unions (CUs) should be examined. Most of the theoretical analyses on the formation of CUs highlight stronger positive welfare effects compared to FTAs. However, there is a lack of empirical evidence to support the second-best theory of customs unions. This paper is an attempt to fill this gap by applying two methodologies: an ex ante simulation approach and an ex-post econometric approach. We quantitatively estimate the trade effect of CUs and FTAs by adopting a Gravity regression analysis. In general, we find that a CU is a superior type of RTA to an FTA in terms of creating more intra-bloc trade. In addition to analyzing the trade effects of RTAs according to type, we quantitatively evaluate the welfare and output effects of CUs for East Asia (an ASEAN+3 CU and a China-Japan-Korea CU) compared to FTAs by applying a computable general equilibrium model analysis. The East Asian CUs adopt a system of common external tariffs (CET) based on simple-averaged, import-weighted, consumption-weighted, and minimum rates. Overall, we find that the ASEAN+3 CU with the minimum CET are the most desirable type of RTA for both East Asian member countries and the world economy as a whole.

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Regionalism and Free Trade Agreements in East Asia

Asian Economic Papers ◽

10.1162/153535103772624853 ◽

2003 ◽

Vol 2 (2) ◽

pp. 145-180 ◽

Cited By ~ 12

Author(s):

Inkyo Cheong

Keyword(s):

South Korea ◽

East Asia ◽

Free Trade ◽

East Asian ◽

Free Trade Agreements ◽

Trade Agreements ◽

Economic Benefits ◽

Economic Feasibility ◽

China And Japan ◽

Northeast Asian

This paper gives an overview of the progress of regionalism in East Asia and examines the background of the recent embrace of trade agreements by China, Japan, and South Korea. It discusses the progress toward free trade agreements (FTAs) within East Asia and offers reasons for their slow development. The impacts of eight hypothetical East Asian FTAs are estimated using a computable generalized equilibrium model. The model predicts that countries will benefit from both bilateral FTAs and regional FTAs (such as a Northeast Asian FTA and an East Asian FTA); however, greater economic benefits would be gained under regional FTAs than under bilateral FTAs. Although the simulation used in the study estimates that a Northeast Asian FTA and an East Asian FTA would bring a similar level of economic benefits, results indicate that greater benefits would accrue under an East Asian FTA. Discussions of a Japan–ASEAN FTA are under way, after talks of an FTA between ASEAN and China blossomed in late 2000. China and Japan are competitively promoting bilateral FTAs with ASEAN. As discussions of an FTA with ASEAN heat up in China and Japan, South Korea has also begun reviewing the economic feasibility of an FTA with ASEAN. If China, Japan, and South Korea competitively pursue bilateral FTAs with ASEAN, this may result in several important problems, including spaghetti bowl effects, a hub-and-spoke dilemma, or struggles for regional leadership. This paper tries to show that an East Asian FTA covering the whole region is economically desirable and stresses that East Asian countries should introduce a regionwide FTA, rather than multiple bilateral or subregional FTAs. An East Asian FTA can be realized only in the long term because of economic, political, and social obstacles. East Asia, which already lags behind other regions in terms of regionalism, should not passively wait for the establishment of an East Asian FTA, which is likely to take some time to be established.

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Chinese Rationale for Free Trade Agreements

International Conference on Eurasian Economies 2012 ◽

10.36880/c03.00387 ◽

2012 ◽

Author(s):

Farrukh Kayani ◽

Zhongxiu Zhao

Keyword(s):

East Asia ◽

Free Trade ◽

East Asian ◽

Free Trade Agreements ◽

Trade Agreements ◽

Trading System ◽

Government Interventions ◽

Multilateral Trading System ◽

The Government ◽

East Asian Economies

In East Asia economic regionalism and Free Trade Agreements (FTAs) are proliferating at tremendous pace despite being the latecomer as compared to Americas and Europe. Proliferation of FTAs in East Asia started to spread after the Asian financial crisis of 1997. The East Asian economies were dissatisfied with the way the IMF handled the crisis, particularly in Thailand and Indonesia. Presently, about over 100 FTAs are at various stages of development in East Asia. China is also actively engaged in FTAs like the other East Asian neighboring countries for achieving multiple objectives. In this paper we analyzed the detailed reasons that why China is pursuing FTAs? Furthermore, it is said that FTAs may jeopardize the multilateral trading system. As FTAs undermine the WTO policy of maintaining a liberal, non discriminatory and multilateral trading system by supporting the government interventions and prudential controls. Thus we would also explore that whether FTAs are building or stumbling blocks?

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