ASEAN Free Trade Agreements

Gemma Estrada et al. (2011) indicated that the natural policy implication for ASEAN policymakers is to concentrate their efforts on bilateral FTAs. They have already made a lot of progress in this regard, having concluded bilateral FTAs with the PRC and the Republic of Korea. Since AJFTA will deliver substantial benefits for ASEAN, policymakers should also prioritize AJFTA. AJFTA was also beneficial to Japan which was conducive for ASEAN’s pursuit of AJFTA. Finally, their analysis of ASEAN’s FTAs with the Big Three were predicated on the premise that ASEAN’s pursuit of closer trade links with its large neighbors should not compromise its vital trade links with the outside world.

Sunitha Raju (2010) presented that the bilateral trade flows between India

& ASEAN have expanded by fivefold during 2000 and 2008. The proposed India‐ASEAN FTA has aimed at enhancing these trade gains and provides potential trade opportunities for both India and ASEAN. With respect to agricultural trade balance, ASEAN has maintained a trade surplus which has increased until 2006 and

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then declined over the last few years. India’s concern, in this regard, would be to examine if this trend entails a severe import threat under a lower tariff regime. The structure of agricultural trade between India and ASEAN is skewed. ASEAN has emerged as an important trading partner for India in agricultural products.

Kenichi Kawasaki (2003) discussed a quantitative simulation analysis on the impact of Japan’s FTAs in Asia using a CGE model of global trade. It has been argued that a regional FTA would be a step toward global trade liberalization rather than a final goal. In fact, it was shown that changes in sectoral trade balance and production would vary according to the partners in Japan’s FTAs in Asia deviating from those expected in global trade liberalization. Moreover, the terms of trade effects would be relatively significant in determining the overall welfare impacts in partial trade liberalization. On the other hand, capital formation mechanisms were shown to be particularly important for macroeconomic gains in several ASEAN countries. It was suggested that liberalization and facilitation of not just the trade of goods but also investment would be essential for economic partnerships in Asia .

Scott Mcdonald et al. (2008) has considered the empirical implications, particularly for developing countries, of the continuation of two strong trends in the global economy: (1) the continued integration of the E&SE (East and South East) Asia trading bloc, and (2) the continued rapid growth of important countries in Asia, with increasing pressure on world markets for manufactures and primary commodities. The results for the integration scenarios indicated that a) an effective E&SE Asia FTA would increase welfare in the region and generate small losses for countries outside the bloc; b) an effective E&SE Asia and India FTA would lead to

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welfare gains for India, while generating substantial additional gains for the E&SE Asia members; and c) continued integration involves significant changes in the structure of production in, and trade by, the E&SE Asia and India bloc while Advanced Asian regions redirect exports from the European Union and the United States toward countries within the bloc, while other members increase their exports to the European Union and United States .

Hiro Lee et al. (2004) observed China’s accelerated global emergence has changed trade patterns in the Asia-Pacific region and exerted important influence on its trilateral relationship with Japan and the United States. They evaluated the effects of multilateral and regional trade policy scenarios that are particularly relevant to China, Japan, and the United States using a dynamic global computable general equilibrium (CGE) model. The results suggested that the three countries would gain substantially from a trilateral free trade agreement and could realize large fractions of the residual gains from global trade liberalization. They contrasted this with prospective free trade agreements (FTAs) in East Asia, and they found that these FTAs largely benefit smaller member economies (e.g., ASEAN countries) .

2.2.1 Effect of Free Trade Agreements (FTA)

Konstantinos Kepaptsoglou et al. (2010) found that the gravity model has been extensively used in international trade research for the last 40 years because of its considerable empirical robustness and explanatory power. They critically reviewed and analyzed recent empirical studies exploiting the gravity model in trade

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flow. Based on its robust performance, the gravity model has been particularly successful and popular among researchers, despite past criticism on its theoretical background. Over 75 papers in the last decade have either used it for analyzing trade policies and their implications or improved its performance; most of the policies examined focused on the effects of FTA agreements .

Matthieu Bussiere and Bernd Schnatz (2006) analysed the rapid trade integration that took place in the past decade between China and the rest of the world. It is argued that the rise in trade flows between China and its trading partners should not, per se, come as a surprise, but rather reflects China’s shift towards more marketed policies together with robust economic growth. They used a gravity model, which captures well the evolution of trade flows over time and across countries, to develop and quantify a new benchmark for trade intensity .

Innwon Park (2000) found that AFTA will enhance intra-ASEAN trade and accelerate the economic growth of ASEAN member nations. The author concluded that economies with higher pre-FTA tariff barriers and larger intra-regional trade volume such as Philippines and Thailand share larger gains from freer trade .

Ismail et al. (2007) found that GDP, population, relative endowment, distance and common language are the main determinants of bilateral trade in ASEAN. The ASEAN dummies used to measure the intra ASEAN trade prove that there was trade creation among the five ASEAN members .

Ce` line Carre`re (2004) used a gravity model to assess ex-post regional trade agreements. The model includes 130 countries and is estimated with panel data over the period 1962–1996. The introduction of the correct number of dummy

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variables allows for identification of Vinerian trade creation and trade diversion effects, while the estimation method takes into account the unobservable characteristics of each pairs of trade partner countries, the endogeneity of some of the explanatory variables as well as a potential selection bias. In contrast to previous estimates, results show that regional agreements have generated a significant increase in trade between members, often at the expense of the rest of the world .

Bhavish Jugurnath et al (2007) used a gravity model to examine bilateral trade involving five trading blocs, with data from 26 countries from 1980 to 2000.

The estimated coefficients from the basic gravity model show that GDP, population, distance between trading partners, as well as cultural similarity (a common language) and physical area explain much cross country trade .