Mega Trading Blocks

Abstract

The plethora of Regional Trade Agreements, especially in Asia, has created a complex web of noodle bowl, which has made trade more difficult. Many countries of Asia are now trying to be part of mega-free trade agreements (FTAs). While Association of Southeast Asian Nations (ASEAN) is consolidating through ASEAN+1 initiative leading to Regional Cooperation and Economic Partnership (RCEP), no such effort has been initiated so far by the South Asian Association for Regional Cooperation (SAARC). This study thus examines the possible effects of regional integration between ASEAN and SAARC on various sectors, as well as on macro-economic and trade areas by using the Global Trade Analysis Project (GTAP) model and database. A scenario of a complete integration between ASEAN and SAARC is simulated using the GTAP model, where the tariffs between ASEAN and SAARC are eliminated on all items but maintained for other trading partners. This article suggests for, among others, consolidation of ASEAN and SAARC FTAs, which will have a greater welfare enhancement, though some sectors will require adjustments due to their sensitivities. The article recommends for a policy dialogue between ASEAN and SAARC as such a process can only be initiated through a political engagement. It also recommends that the developing countries shall eliminate their tariffs in 5 years and allow longer time frame for the LDCs.