Role of Regional Trade Agreements with Specific Focus on the Asia-Pacific Trade Agreement

1. Role of Regional Trade Agreements with Specific Focus on the Asia-Pacific Trade Agreement International Workshop on “Central Asia and China: Economic Relations, Current Situation and Prospects” 11-12 July 2006, Siam City Hotel, Bangkok Tiziana Bonapace Chief, Trade Policy Section Trade and Investment Division, UNESCAP

2. RTAs in Asia and the Pacific

3. Evolution of Asia-Pacific Regionalism • Broadly 3 waves • First wave (50s/60s/70s): • 1950 Conference on Asian/African cooperation in Bandung, Indonesia, the precursor of the non-aligned movement. • Import-substitution industrialization strategy becomes development model. South-South cooperation based on strategic selection of tariff liberalization among members to promote industrialization. Inward looking with high tariff walls to keep out imports competing with “infant industries”. • First RTA signed in 1975: Bangkok Agreement • Second wave (80s/90s): • unsustainability of import-substitution model, globalization accelerates and results in north/south interdependence. Outward-oriented, “open regionalism” i.e. faster liberalization among RTA “friends” while at the same time lowering barriers to third parties

4. Evolution of Asia-Pacific Regionalism • Second wave: • Establishment of APEC based on non-discriminatory principles in its strictest interpretation, conclusion of UR • Rapid increase in membership to GATT/WTO. • Regionalism and multilateralism enter golden age of mutually supportive liberalization • Third wave (Late 1990s-present): • financial crisis • stalling of APEC process of liberalization • stalwarts of MFN (Japan and Rok) turn regional, as well as China who completes most difficult part of internal transformation. • New era of deep and wide economic partnership agreements, with FTA as core, but much wider economic cooperation as well • Bilateralism is key feature

6. Where Does Asia-Pacific Stand?: New Age Regionalism • Despite density of agreements, concluded agreements are generally ‘lite’, particularly those among developing countries • liberalization shifted to future (10 years or more) • significant exceptions in goods • rules of origin restrictive • services not covered • investments covered, but focus more on investor protection than locking in investment liberalization • dispute resolution mechanisms not well defined However, agreements involving developing and developed countries much more comprehensive. • services, TRIPs, investments and other WTO+ features are prominent • increasing public concern regarding asymmetric negotiating powers • calls for greater democratization of trade policy formulation: strengthened consultative mechanisms (bottom-up), increased role for parliamentarians as interface between societies and policy making executive branch

7. Where Does Asia-Pacific Stand?: New Age Regionalism • Other forms of regional economic cooperation also continue • Growth triangles/quadrangles, EPZs, SEZs • Many forms: intergovernmental/private sector driven • Common themes: riparian cooperation, transport corridors, energy selfsufficiency.

8. Where Does Central Asian Regionalism Stand? • Numerous economic cooperation schemes and BTAs/RTAs. • Renewal of economic cooperation after collapse of USSR • WTO membership a priority for most. Also allows regional integration to proceed more effectively Armenia, Georgia, Kyrgyzstan • SPECA – Economic Cooperation Programme by 2 UN regional Commissions: ESCAP + ECE

9. Where Does Asia-Pacific Stand?: New Age Regionalism and the Contagion Effect • Domino effect • Fear of marginalization (not being able to share benefits of membership) as more and more countries become members of FTA • Originally used to explain successive waves of EU expansion • Fatigue with multilateralism • Disenchantment with APEC as a driver of liberalization, • Aftermath of 1997 financial crisis and disappointment with global response and policy prescriptions: few countries untouched, rekindled common destiny bonds and regional identity • Turning point: ASEAN+China+Japan+RoK, Singapore took lead in BTAs • Competitive regionalism • Secure trade interests and establish sphere of influence that goes beyond trade • United States now trend setter, also Japan. • Used as strategy to pressure non-members to join or enter into broader trade agreements • Defensive and offensive mutually reinforcing strategies at play

10. New Age Regionalism: Where is Asia-Pacific Going? • At what configuration will this process come to rest? • Emergence of natural hubs: large trading country establishing trade hegemony, linked to a series of spokes (developing countries) • A developing country hub may also emerge: a defensive hub seeking to avoid spoke position with trade hegemon • Mulilayered strata of hubs and spokes emerging • Through time, gravitational force of one hub linked to rest of region through spokes may be final resting point

11. New Age Regionalism: Where is Asia-Pacific Going? • Role of ASEAN: option of developing countries collectively establishing themselves as alternative hub? Has ASEAN managed to overcome internal differences associated with its diverse membership? Can ASEAN move from shallow to deep integration? • Spinning top - centrifugal force driven by an inertia – at the center- that acts outwards and draws energy from a body moving about the center. How can the force be directed towards the center? Can the ASEAN Charter, or the dynamism of +1+1+1 countries, or a conclusion of the Doha Round impart the energy needed for ASEAN to harmonize policies and achieve deep integration?

12. Policy Implications and Negotiating Strategies • To promote trade for development, there is a need for geographical and functional harmonization and consolidation of the many RTAs through.… • …the establishment of common principles, practices, and operational procedures for liberalization initiatives, in both trade and investment • As a first step, start with a comprehensive framework on RoO

13. New Age Regionalism: Where is Asia-Pacific Going? • Geographical Consolidation • Historical conflicts, wide variations in political, legal systems, cultural values. Fear that integration will become dysfunctional. • Expansion of EU membership a positive example of geographical consolidation. More than 65 bilateral trade agreements notified to WTO abrogated when EU expanded • Crucial differences between EU and Asia • Customs Union vs FTAs. Geographical proximity much more relevant for CU than FTAs. No example of CU among geographically dispersed countries such as in cross continental BTAs of Asia • Is Customs Union with common external trade policy and deep integration sine qua non for geographical consolidation?

14. Integrating East, South-east and Central Asia ECOTA Afghanistan Islamic Rep. of Iran Turkmenistan ECOTA Afghanistan Islamic Rep. of Iran Turkmenistan ECOTA Afghanistan Islamic Rep. of Iran Turkmenistan BSEC Georgia (Albania, Bulgaria, Greece, Romania) CIS EU Moldova Ukraine Kazakhstan Kyrgyzstan Tajikistan Uzbekistan EurAsEC Russian Federation Belarus Armenia + China +Republic of Korea Lao PDR SCO Azerbaijan China Turkey +Japan AFTA Indonesia Malaysia Philippines Brunei Darussalam Singapore Viet Nam Cambodia APTA BIMSTEC Pakistan India Bangladesh Sri Lanka Thailand Myanmar • Note: WTO members are in italics. • Armenia, Moldova, Ukraine: Observer Status of EurAsEC Bhutan Maldives SAFTA Nepal

15. New Age Regionalism: Where is Asia-Pacific Going? • B. Functional cooperation and consolidation • Asia-Pacific could also evolve its own form of consolidation, based on pragmatism, flexibility and outward orientation which have served the region well up to now • Adoption of common framework of principles, practices and procedures that puts regionalism as a building block of multilateralism on a more solid and commonly shared foundation • Rules of origin one key area. APTA representing a wide spectrum of industrial development across the region has evolved a set of common rules of origin, based on flat percentage rate 45 per cent (35 per cent for LDCs) local content that may imply an acceptable commonality • Investment (proliferation of BITs) and coherence with investment provisions in BTAs?

16. New Age Regionalism: Where is Asia-Pacific Going? • C. Integration through enhanced institutions • Numerous regional organizations such as UNESCAP, ADB, ASEAN, SAARC APEC, Pacific Forum Secretariat are in good position to draw out commonalities and work on common principles, best practices, modal agreements. • Bold mandates and resources lacking, and more importantly, these institutions are intergovernmental, member driven • Is there a need for a more formal supranational system of regional governance or are current intergovernmental institutions sufficient? • Can institution driven integration of EU offer useful example? • Need for balancing vision with realism: more effective use of existing institutions. Cost effectiveness of creating new institutions? • Deep policy, political and historical differences among countries of the region might prevent supranational governance?

17. APTA: A Bridge across Asia • Signed in 1975 as an initiative of UNESCAP, the Bangkok Agreement, now APTA, is Asia’s oldest preferential trade agreement between developing countries. • It aims to promote regional trade through an exchange of mutually-agreed concessions. • Bangladesh, China, India, Republic of Korea, Lao PDR and Sri Lanka are member countries.

18. Region-wide membership potential • Only RTA in which two most populous and fastest growing economies are members (i.e. China and India) • Through China and India linkages with other RTAs in the region can be established (e.g. AFTA, BIMSTEC, SAFTA)

19. Expanding Membership Status: China’s accession in particular makes membership more attractive to countries in the region Efforts are being taken to expand membership. Mongolia and Pakistan have indicated intention to join, others have expressed interest Next target: Central Asia

20. THANK YOU!