Re-examining the Impact of ACFTA on ASEAN's Exports of Manufactured Goods to China

Abstract

There is a relatively large body of literature examining ASEAN–China relations, including assessments of the impact of the ASEAN–China Free Trade Agreement (ACFTA) on ASEAN's welfare and its trade with China. Overall, the results of these studies indicate a positive impact of ACFTA on the region's exports to China. These results differ from firm-level surveys that indicate a low utilization rate of most regional trade agreement tariff concessions, including those provided by ACFTA. Moreover, trade in manufactured goods in the region has been characterized as market-led, and governed by multinationals (MNCs) and their regional production networks. Thus, MNC decisions are the driving force influencing changes in manufactured parts and components trade in the region. This trade is also fostered by duty-free imports in the export enclaves provided by the host economies for these MNCs. In view of the conflicting empirical evidence on the trade effects of regional trade agreements, the objective of this study is to re-assess the impact of ACFTA on ASEAN's manufactured exports to China. In performing this analysis, we separately evaluate the effects of trade in parts and components (P&C) and non–parts and components (non P&C) or final manufactured goods. When we apply gravity estimation methods to individual regressions for these two forms of trade, we find that the determinants of trade are indeed different for the two sectors, and that the implementation of ACFTA had different effects on P&C versus final goods ASEAN exports to China.