Sustaining International Trade with China: Does ACFTA Improve ASEAN Export Efficiency?

Antonio Alleyne,Yifei Mu,Zhaoyong Zhang

doi:10.3390/su12156159

Abstract

The business of international trade has never been identified as zero-sum. Yet, dependence on regional agreements to provide alternate means for countries to overlook shortcomings persists. China’s recent rise up the trade value-chain has fostered an assumption that the regional agreement provides various advantages to exports from Association of Southeast Asian Nations (ASEAN) member countries. This paper provides an empirical assessment of the ASEAN-China Free Trade Area (ACFTA) impact on ASEAN export efficiency into the Chinese market, in pre and post eras. Using a structured gravity approach to estimate potential export pattern at aggregate and industry level, this research indicates that though not consistent across years, the ACFTA offers improvements to ASEAN exports to China. No clear effects of the ACFTA can be extrapolated from the years surrounding the initial signing (Article 8—2004). However, following its full enactment (2010), the ACFTA resulted in more sustainable trade from ASEAN members towards China, at both the industry and country levels. While seeing improvements in export efficiency during its era, ACFTA’s facilitation of efficiency measures with China came at no expense to other major export destinations.

Highlights

Closeness in proximity creates limitations for countries to capitalize on the otherwise comparative or location advantages; i.e., when trading partners comprise the same region
The two parties subsequently launched a currency swap initiative and began negotiations on an Association of Southeast Asian Nations (ASEAN)-China Free Trade Area (ACFTA), which entered into force in 2010), advantages in trade are likely held by the country which possesses the greater number of other competitive elements—access to natural resources that are restricted to competitors, highly skilled labor, access to new or proprietary technology, etc
This study addresses the question about if the ACFTA has resulted in an improvement in the efficiency performance of ASEAN exports to China

Summary

Introduction

Closeness in proximity (referring to the sharing of land, maritime borders, and the similarities in culture and long-standing economic exchanges) creates limitations for countries to capitalize on the otherwise comparative or location advantages; i.e., when trading partners comprise the same region. The two parties subsequently launched a currency swap initiative (the Chiang-Mai Initiative) and began negotiations on an ASEAN-China Free Trade Area (ACFTA), which entered into force in 2010), advantages in trade are likely held by the country which possesses the greater number of other competitive elements—access to natural resources that are restricted to competitors, highly skilled labor, access to new or proprietary technology, etc. The country which possesses these elements are likely to reap greater and more sustainable gains from trade

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Conclusion