Free Trade Agreements in East Asian Countries: What Has Been Done and What Needs to Be Done?

Abstract

In this paper, we attempt to make a critical assessment of East Asia's free trIn this paper, we attempt to make a critical assessment of East Asia's free trade agreements (FTAs) and suggest future steps of action. The FTAs of three Northeast Asian countries and five ASEAN countries are examined. We find that the concluded and currently negotiated FTAs of East Asia have produced a fairly limited impact on trade and welfare. The limitation came from the fact that the selection of FTA partners was not based on economic gains but on an ad hoc basis or a defensive purpose. Therefore, we suggest that East Asian countries concentrate FTA activities on trade partners with large trade volumes. In this regard, the successful conclusion of the ongoing Korea-Japan FTA negotiation is crucial, and the two governments need to dissociate social and historical concerns with economic considerations. The FTAs between China, Korea, Japan and the U.S. should immediately follow the Korea-Japan FTA to realize the potentials and to prevent biased specialization. The FTAs of East Asia allowed a wide range of exemptions to protect inefficient sectors such as agriculture. The proper approach, we suggest, is not to avoid the problem but to proceed with comprehensive agreements and thus maximize the gains of FTAs. Restructuring industries and reallocating resources to the sectors with comparative advantage, while providing adequate assistance programs, is required. We also note that East Asian countries should utilize existing unilateral, regional and multilateral methods of liberalization as well as bilateral FTAs.