Mega-Regionalism in Asia: 5 Economic Implications Ganeshan Wignaraja Advisor, Economic Research and Regional Cooperation Department, Asian Development Bank gwignaraja@adb.org London October 16, 2015
Selected references Baldwin, R, M. Kawai and Wignaraja, G. (2014) A World Trade Organization for the 21 st Century: The Asian Perspective, Edward Elgar. Available for free download at http://adbi.adb.org/files/2015.01.08.book.wto.21st.century.asian.perspective.pdf Wignaraja, G. (2014a), The Regional Comprehensive Economic Partnership: An Initial Assessment in T. Guoqiang and P. Petri (eds.) New Directions in Asia-Pacific Economic Integration, Honolulu (Hawaii): East West Center. Available for free download at http://www.eastwestcenter.org/publications/new-directions-in-asia-pacificeconomic-integration Blog version at http://www.voxeu.org/article/mega-regionalism-asia Kawai, M. and Wignaraja, G. (2013), Patterns of Free Trade Areas in Asia, East West Policy Studies No. 65. Available for free download at http://www.eastwestcenter.org/download/6049/33921/ps065.pdf 2
Key Features of Mega-Regional FTAs in Asia TPP (Trans-Pacific Partnership) - Negotiations completed on 5 October 2015 after 5 years for biggest regional trade agreement in history - US, Canada, Mexico, Chile, Peru, Japan, Malaysia, Vietnam, Brunei, Singapore, Australia, and New Zealand, - 21 st Century trade agreement e.g. intellectual property, government procurement, competition, labour and the environment - High degree of openness and possibly limited membership RCEP (Regional Comprehensive Economic Partnership) - On-going negotiations which began in November 2012 - ASEAN 10, Australia, PRC, India, Japan, South Korea and New Zealand - ASEAN centrality in negotiations and expansion of ASEAN Economic Community - ASEAN FTA model with goods trade, services trade, investment and dispute settlement, special and differential treatment of LDCs
1. Trade Liberalization via Mega-Regional FTAs Critical to Growth in New Normal Era Developing Asia GDP and Trade Growth Murky Protectionism and Barriers to Service Trade 30.0 20.0 10.0 0.0-10.0 2001 2002 2003 2004 GDP growth 2005 2006 2007 Total Trade growth Source: ADB calculations using data from the IMF WEO (GDP) and WTO (Trade). Average Number of Implemented Measures Affecting Specified Partner by Sub-Region 1,400 All Measures Except Trade Defense Measures 1,210 1,200 1,000 859 800 565 600 400 229 200 75 - Central East Asia South Asia Southeast The Pacific Asia Asia Source: Global Trade Alert database (Accessed September 2015. 2008 2009 2010 2011 2012 2013 Average Service Trade Restrictiveness Index by Sub-Region Source: World Bank Services Restrictiveness Database (2015) 2014 Central Asia 17.0 East Asia 29.9 South Asia 44.1 Southeast Asia 47.8 The Pacific -
2. Significant Likely Impact from Mega- Regional FTAs When Implemented Number of countries participating TPP RCEP FTAAP 12 16 21 70 60 50 Economic Size of TPP, RCEP and FTAAP 58 46 Aggregate share of world GDP (%) Aggregate share of world exports (%) 38 29 58 24 30 46 40 30 20 12 16 21 38 29 30 24 10 0 Number of countries participating Aggregate share of world GDP (%) Aggregate share of world exports (%) TPP RCEP FTAAP Source: Trade Insights UN ESCAP. December 2014.
Larger Grouping, Larger Projected Gains % change from baseline 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 World income gains in 2025 under alternative scenarios Total gain US $295 billion Total gain US $644 billion Total gain US $1,922 billion TPP RCEP FTAAP Tracks Region-wide FTAs offer more gains to world income than bilaterals Eventual FTAAP offers notable gains over RCEP and TPP Insiders gain while outsiders loose little Source: Petri, Plummer and Zhai (2011) and their updates 6
RCEP Estimated National Income Gains Percentage change in income a Thailand Vietnam Korea, Rep Malaysia Singapore New Zealand Australia Philippines Indonesia India Japan PRC Cambodia Other ASEAN 0 2 4 6 8 10 12 14 % change a Compared to a 2017 baseline. Estimated from a CGE model. Source: Kawai and Wignaraja (2014) based on CGE Model in Francois and Wignaraja (2008) 7
3. Need to Deal with Losers from Mega- Regional FTAs Countries with losing sectors in mega-regional FTAs should Strengthen business support for potentially competitive SMEs Introduce reforms to improve the business environment Provide social protection, re-training and adjustment assistance Outsiders (especially LDCs) to mega-regional FTAs should Strengthen pro-trade response Implement policy reforms to attract FDI and stimulate SMEs Improve access to commercial bank finance for SMEs Invest in capacity building and policy reforms Lobby for open accession to mega-regional FTAs and for transparency in trade rules Work with regional powers to secure membership of mega-regional FTAs Members of mega regional FTAs should Adopt inclusive approaches such as consultative mechanisms on rules to nonmembers and giving weight to ideas proposed by non-members Develop active dialogue with leading firms in global value chains to invest in LDCs and raise competitiveness of SME suppliers Where possible, expand development assistance to LDCs Consider a WTO agenda on GVCs and FTAs
4. Mega-Regional FTAs may be a Bottom Up Means to WTO Rule Making FTAAP TPP Trans-Pacific Track) RCEP East Asian Track) TPP and RCEP are seen as pathways for an eventual Free Trade Area of Asia and the Pacific (FTAAP) and can also promote rule making at the WTO At the 2014 APEC Leaders Summit in Beijing a strategic study on FTAAP was launched which will presented in APEC 2016. An FTAAP could eventually arise from different routes: i. combining RCEP and TPP ii. iii. absorption of RCEP by TPP developing a new FTAAP agreement But this process will take time and requires notable vision and political will TPP, RCEP and FTAAP offer templates for rule making at the WTO
5. WTO Reforms Critical for Effective Global Trade Governance With WTO Ministerial Conference in December 2015, timely to explore the WTO s role and a reform agenda. 1. Enhance the WTO s think tank and capacity building role on international trade data, law and dispute settlement 2. Strengthen the WTO s Dispute Settlement Mechanism such as appointing full-time panellists 3. More use of plurilateral agreements on sector-specific issues for like-minded countries within the WTO framework. Open accession essential. 4. A limited Doha Round agreement anchored on trade facilitation would be better than no agreement. 5. Explore reforming the voting system at the WTO before embarking on another WTO trade round. 6. Formulate a WTO agenda on supply chains and FTAs to encourage convergence of regional and global trade rules.
Summary 1. Trade Liberalization via Mega-Regional FTAs Critical for Growth in New Normal Era 2. Significant Likely Impact of Mega-Regional FTAs When Implemented 3. Need to Deal with Losers from Mega-Regional FTAs 4. Mega-Regional FTAs may be a Bottom Up Means to WTO Rule Making 5. WTO Reforms Critical for Effective Global Trade Governance