Asian FTAs: Trends, Prospects, and Challenges

Abstract

Although a latecomer, economically important Asia has emerged at the forefront of global free trade agreement (FTA) activity. This has sparked concerns about the negative effects of Asian FTAs, including the “noodle bowl” problem. Amid slow progress in the World Trade Organization’s (WTO) Doha negotiations and the global financial crisis, however, Asian regionalism seems to be here to stay. The focus for policy makers should then be how best to minimize the costs of FTAs while maximizing their benefits. Adopting a pragmatic perspective, this paper examines key trends and challenges in Asian FTAs. It provides new evidence from firm surveys, analysis of specific agreements, and computable general equilibrium estimates. It provides the following set of recommendations: strengthen the support system for using FTAs; rationalize rules of origin and upgrade their administration; ensure better coverage of agricultural trade; forge comprehensive “WTO-plus” agreements; and encourage a regionwide FTA. Political economy considerations suggest that a likely scenario is for FTA consolidation in Asia – by creating a People’s Republic of China-Japan-Republic of Korea FTA, combining it with ASEAN 1 FTAs, and then involving Australia, India, and New Zealand – to be followed by connections with North America and Europe. In conclusion, the analysis suggests that a bottom-up approach to a Doha Round Agreement should be adopted.