Economics of an East Asian FTA Presented by S K Mohanty, Fellow, RIS 1
Structure of Presentation Sustainability of the Asian Eco. Community East Asia FTA emerging as a Mega RTA Changing structure of regional trade Changing trade composition and preference for trade liberalization Trade and other priority issues for EAC Expected Gains from comprehensive forms of EA FTA Towards harmonization and setting targets for East Asian FTA 2
Background ASEAN Process with Plus Members Steady progress Comprehensive reforms with Financial liberalization CMI, FTAs, BTAs, etc Australia and New Zealand Integration with the ASEAN BTA (Singapore, Thailand, etc) Enlargement of East Asian Community Complementary effects: Strengthening agricultural and mining sector New opportunities and challenges 3
Features of Effective FTA Size of RTA North-South vrs South-South RTAs Macroeconomic stability Potential for trade expansion Political motivations 4
How Big is the Size of EAC? Comparison with NAFTA and the EU Pre- and Post-crisis periods 5
NAFTA EAC Y02 6 Surge of East Asian Community EU Y00 Y98 Y96 Y94 Y92 Y90 Y88 Y86 Y84 Y82 Y80 14000 12000 10000 8000 6000 4000 2000 0 NAFTA EU JACIK EAC GDP in Bill US$ (Cons)
Strong Macroeconomic Fundamentals Strong growth potential Surge of per capita income and middle income group Foreign Direct Investment supply and demand Economic liberalization and outward orientated policy 7
Direction of Regional Trade Region s trade towards industrialized countries in the Eighties Gap between developed and developing countries decline during the 1990s New phase during the Asian Crisis Recent trends 8
Exports of JACIKAN to D/ed & D/ing Countries 80 Developing Industrial 60 40 0 20 Y04 Y03 Y02 Y01 Y00 Y99 Y98 Y97 Y96 Y95 Y94 Y93 Y92 Y91 Y90 Y89 Y88 Y87 Y86 Y85 Y84 Y83 Y82 Y81 Y80 Developing Industrial 9 % of total exports
Asia Centric Trade Trade with developing Asia since the mid-80s Region s exports to developing Asia growing faster than any other region Exports to other developing countries regions 10
Is Regional Trade Asia Centric? Million US$ 2500000 2000000 1500000 1000000 500000 0 World Asia World Asia Africa Middle East Europe 11
Y04 Y02 12 Distribution of Region's Exports to Developing Countries: By Continent Asia Middle East Y00 Y98 Y96 Y94 Y92 Y90 Y88 Y86 Y84 Y82 Y80 50 40 30 20 10 0 Asia Africa Middle East Europe % Share in Total Exports
Direction of Intra-Regional Trade IRT among ASEAN countries growing since late 1980s Post crisis period level of IRX of ASEAN countries remained stagnant During Asian Crisis, IRT of ASEAN Plus declined sharply than ASEAN countries IRX of ASEAN Plus has made a sharp recovery and steady growth in IRX 13
IRT of ASEAN and ASEAN Plus Where do they go? IRTJacikan IRT ASEAN Y04 Y03 Y02 Y01 Y00 Y99 Y98 Y97 Y96 Y95 Y94 Y93 Y92 Y91 Y90 Y89 Y88 Y87 Y86 Y85 Y84 Y83 IRT ASEAN IRTJacikan Y82 Y81 Y80 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 14 Intra-regional Exports (%)
How Consistent is Inra-regional Exports in JACIKAN? 2500.0 2000.0 World Jacikan 1500.0 1000.0 IRT ASEAN Y04 Y03 Y02 Y01 Y00 Y99 Y98 Y97 Y96 Y95 Y94 Y93 Y92 Y91 Y90 Y89 Y88 Y87 Y86 Y85 Y84 Y83 Y82 Y81 Y80 15 1000.0 800.0 600.0 400.0 200.0 0.0 500.0 0.0 IRT ASEAN World Jacikan Billion US$
Structure of Intra-Regional Trade Region s exports is dominated by manufacturing products Dominant sectors: Technology intensive sectors Low level of trade in agricultural sector 16
Composition of Intra Regional Manufacturing Trade In ASEAN Plus Agriculture Mining Manufacturing 17
45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Structure of Intra Regional Exports in EAC 18 % Share in Total IRX Animal Products Vegetable Fats & Oils Prepared Mineral Products Chemicals Plastics Hides & Skins Articles of Wood Pulp of wood Textile & Textile Footwear Articles of Stone Gems & Base Metals Machinery Vehicles etc Photograph & Arms and Misc Works of Art etc
Structure of Trade in the Region Region s trade is dominated by manufacturing sector Emerging sector Technology intensive sectors Low level of trade in agricultural sector Possibility of clash of interest between new members and JACIK economies 19
Difference in Export Structure: ASEAN Plus & New Members Works of Art etc Misc Arms and Photograph & Vehicles etc Machinery Base Metals Gems & Articles of Stone Footwear Textile & Textile Pulp of wood Articles of Wood Hides & Skins Plastics Chemicals Mineral Products Prepared Fats & Oils Vegetable Animal Products 20 50.0 40.0 30.0 20.0 10.0 0.0 ASEANPlus New Members % Total Exports
India s Experiences with Regionalism Favouring both regionalism and multilateralism Associated with the regional process since 1975 India s engagement with certain Important regional initiatives Regional initiatives Bilateral initiatives Pan-continental initiatives India s trade ties with important East and South- East Asian countries Signed Agreements Under negotiations 21
Other Important Issues for the EAFTA Trade in goods Investment GATS: Movement of natural persons Trade in Environment Sensitive Goods Cooperation technology transfer Building of institutions 22
Potential Gains from Regional Model Potentials gain from different schemes of regional arrangements Advantage for comprehensive arrangements FTA Comprehensive arrangement including investment More broad-based arrangement goods, investment and movements of natural persons 23
Welfare Gains from Comprehensive Trade Liberalisations Billion US$ 250 200 150 100 50 0 FTA Regional Gains FTA+ Investment FTA+ Investment+ Mode4 24
Effects of Regional Integration in East Asia Developing a new model for the EA FTA Salient features of CGE Model Inclusion of Australia and New Zealand Results: two scenarios FTA and Comprehensive arrangement Substantial gains from the regional countries Level of gains arrangements Choice of regional Positive impact on other sectors (wage, exports, ToT, etc) 25
Welfare Effects of Deeper Level of Integration FTA Comprehensive Without With Without With Japan 1.72 1.76 3.36 4.05 South Korea 2.51 2.63 3.16 3.98 China-Hong Kong 0.3 0.58 1.58 2.53 India 0.96 1.37 1.84 2.79 Australia -0.21 1.61 1.5 4.07 New Zealand 0.04 2.96 1.3 5.81 Indonesia 3.53 3.85 6.11 7.03 Malaysia 3.15 3.42 4.67 5.62 Philippines 1.26 1.35 2.7 3.5 Singapore 1.88 1.86 2.48 3.07 Thailand 2.99 3.36 4.33 5.4 26
Towards East Asia FTA Several initiatives in the region Variations in the level of liberalization in different initiatives Merger of individual regional initiatives Potential gains Liberalization in individual initiatives may be directed towards EAFTA targets for liberalization Setting goals for EAFTA and convergence of trade liberalization of other RTAs in the region 27
Setting Targets for individual FTAs to Move Towards East Asia FTA A B C D 28
Summing up Region has strong potential to grow Potential gain in the merger of various initiatives in the region Formulating goal setting approach Provision for short duration adjustment period to move towards EAFTA Simultaneous institutional development to support East Asia FTA process 29
Thanking You 30