Apr
2012

How can Asia maximize benefits from FTAs?

In the absence of a comprehensive World Trade Organization (WTO) Doha Round, free trade agreements (FTAs) have been proliferating worldwide. In Asia, the number of FTAs in effect has increased from 25 in 2000 to 99 as of January 2012. While FTAs draw economies closer and allow regional production networks to expand, they also carry costs. One is discrimination against nonmembers—which could lead to welfare losses from trade diversion. Also, multiple and overlapping bilateral and plurilateral FTA initiatives—known as the “Asian noodle bowl”—can raise costs of doing business due to competing tariffs, standards, and rules. Experts agree that a successful WTO Doha Round is the best solution to these problems. However, incessant delays in concluding Doha spawned alternative measures. Several proposals have been put forward, broadly grouped into two approaches:

  • Consolidation revolves around creating a single region-wide FTA to help harmonize bilateral FTAs within the region. Furthermore, it is expected that a broader-based, regional FTA could spur growth in Asian trade and investment by helping create a larger regional market, economies of scale, and technological transfer.
  • Multilateralization grants non-discriminatory preferences to nonmembers, eliminating any preference discrepencies.

These two approaches, however, need not be mutually exclusive. Should the consolidation approach result in a region-wide FTA, it does not preclude implementing multilateralization. The preferences of the new regional FTA could still be offered to nonmembers on a non-discriminatory basis. Consolidation could also be a stepping stone in forging a deeper WTO Doha Round deal, as concessions on agriculture and industrial goods—stumbling blocks to a successful Doha Round—might already be agreed upon in a region-wide FTA. A few questions relating to the consolidation approach remain, however, such as: (i) how these multiple bilateral agreements, each with its own defining rules and characteristics, can be folded into one agreement, without resorting to the lowest common denominator; (ii) how to deal with the cross-regional bilateral agreements, which constitute the vast majority of FTAs. Both of these issues are addressed by the multilateralization approach however, whether applied independently or jointly with the consolidation approach.

The views expressed in this blog post are the views of the author and do not necessarily reflect the views or policies of ARIC, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ARIC does not guarantee the accuracy of the information and data included in this blog post and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with official ADB terms.