ASEAN3

1. ASEAN+3/+6 or TPP? Pathways Towards East Asian FTA Consolidation Ganeshan Wignaraja Principal Economist Asian Development Bank gwignaraja@adb.org Washington, D.C. February 2011

2. 2 Messages Asia’s trade rebounding; regional integration picking up Firms see net FTA benefits and more FTA use in East Asia but challenges remain. Asia-wide FTA can increase market access, reduce noodle bowl risk & facilitate Doha deal. Different reasons make either ASEAN+3/+6 or TPP more attractive Reality may be a series of linked agreements with variable coverage of members and issues

3. Asia Rebounding from Crisis

4. Rapid Spread of FTAs in East Asia*

5. Sample 841 firms in 6 countries (PRC, Japan, Korea, Singapore, Thailand, Philippines) Sectors: electronics, automobiles, textiles and garments and country specific sector Simple random sampling method Size - 33% SMEs Ownership – 40% foreign-owned

6. Key questions Are FTA preferences being used? What are the benefits and costs of FTAs for firms? Are multiple rules of origin (ROOs) a burden on firms? Is there enough business support for domestic firms to utilize trade preferences under FTAs?

7. FTA use higher than expected (28.4%) and may increase in future (53.2%).

8. Profile of Users and Non-Users of FTAs* Firm size: Users in all five countries are significantly larger than the non-users Ownership: Users in Japan & Thailand have significantly higher share of foreign equity than non-users Age of firm: Users in Thailand & Philippines are significantly older than non-users Awareness of FTA provisions: Users in Japan, Singapore, PRC, and Thailand are significantly more knowledgeable of FTA provisions that affect their business than non-users Responsiveness to FTAs: Users in all five countries are significantly more likely to have changed business plans in response to FTAs

9. Firms report more benefits than costs from major FTAs in effect

10. Impediments to Using FTA Preferences

12. Huge demand for FTA support services

13. A Possible Way Forward? Complete note: The data covers 58 FTAs in Asia due to unavailability of online official English text of three FTAs. Agricultural products and chapters are classified according to WTO classification. “Comprehensive” means agriculture is substantially covered (at least 85% of agricultural product lines) or not more than 150 product lines are excluded. “Excluded or Limited” means agriculture is completely excluded or less than 100 product lines or 5% of the total tariff lines. “Some coverage” refers to those in between excluded/limited and comprehensive. Sources: Legal annexes of FTAs (see www.aric.adb.org); Trade Policy Review reports as of June 2010 (WTO, various years).Complete note: The data covers 58 FTAs in Asia due to unavailability of online official English text of three FTAs. Agricultural products and chapters are classified according to WTO classification. “Comprehensive” means agriculture is substantially covered (at least 85% of agricultural product lines) or not more than 150 product lines are excluded. “Excluded or Limited” means agriculture is completely excluded or less than 100 product lines or 5% of the total tariff lines. “Some coverage” refers to those in between excluded/limited and comprehensive. Sources: Legal annexes of FTAs (see www.aric.adb.org); Trade Policy Review reports as of June 2010 (WTO, various years).

14. A Region-Wide FTA would ….. Increase market access for goods, services, skills and technology. Increase market size – specialization and economies and scale. Easier FDI flows by MNCs and technology transfer. Simpler tariff schedules, rules and standards. Offer an insurance against protectionist sentiments that pose a risk to Asia’s trade and recovery.

15. Larger Grouping, Increasing Gains

16. ASEAN+ vs. TPPGoods Market Liberalization

17. Likely Scenario Any region-wide FTA – series of linked agreements with variable coverage of members and issues. For now, 2 competing processes ASEAN + 3 or +6 Trans Pacific Partnership (TPP) agreement For ASEAN+3/+6 FTA, a PRC-Japan-Korea FTA needed and connected with ASEAN+1 FTAs. TPP – early step towards APEC-wide FTA, but will unlikely include a US-PRC FTA

18. Way Forward Biggest challenge lies in political will and geopolitical considerations in moving forward on ASEAN+3/+6 and TPP. Different reasons make either ASEAN+3/+6 or TPP more attractive. Whichever taken, integration should be deepened and domestic reforms pursued. A harmonious region will likely see convergence between two processes as building blocks– win-win for Asia-Pacific Community.

19. Selected References 1. Masahiro Kawai and Ganeshan Wignaraja (eds. 2011) Asia’s Free Trade Agreements: How is Business Responding? Cheltenham (UK) Edward Elgar . Read-only PDF of is available at: http://www.adbi.org/files/2011.01.31.book.asia.free.trade.agreements.pdf 2. Masahiro Kawai and Ganeshan Wignaraja, (2011), “Asian FTAs: Trends, Prospects and Challenges”, Journal of Asian Economics, February. 3. Masahiro Kawai and Ganeshan Wignaraja, (2010), Free Trade Agreements in East Asia: A Way Toward Trade Liberalization?: http://www.adb.org/documents/briefs/ADB-Briefs-2010-1-Free-Trade-Agreements.pdf