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p. 63 of 81 BACK | NEXT I. Developing Asia and the World II. Economic Trends and Prospects in Developing Asia III. Preferential Trade Agreements in Asia and the Pacific Overview Trends in Trade and the Expansion of PTAs: Trends in World and Asian Trade Flows Diversity in of PTAs Origins of PTAs Institutional Characteristics of PTAs PTAs as Mechanisms for Regional Cooperation Asia and Pacific PTAs and the World Trade Organization Income Characteristics of PTAs Overlapping Memberships in PTAs and Multilateral Trading Arrangements The Economic and Broader Effects of PTAS: Theoretical Arguments Effects of PTAs on Trade in Asia and the Pacific: Some Evidence Conclusions References

Asian Development Outlook 2002 : III. Preferential Trade Agreements in Asia and the Pacific : Diversity in of PTAs

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PTAs as Mechanisms for Regional Cooperation

PTAs in the Asia and Pacific region have made some progress in achieving their non-economic policy agenda. Frequent meetings among heads of state, trade officials, and other ministers suggest that they provide important opportunities for increased communication among member states, but these often fail to provide concrete measures to institutionalize reforms, while the lack of strict dispute settlement mechanisms detracts from the PTAs’ ability to serve as “commitment mechanisms” for member countries.

Arenas for Communication. AFTA and SAPTA are both embedded in larger efforts that provide a strong background for regional communication at both political and technical levels. ASEAN’s institutional structure is centered on ensuring frequent contact among member countries’ heads of state as well as among trade specialists. Meetings of the heads of state (the ASEAN Summit) are held annually, as are the ministerial meetings. The annual summits of SAARC are an opportunity for informal political consultation. The Council of Foreign Ministers, which meets twice a year, is charged with reviewing goals and identifying new areas for cooperation. Similarly, CER provides a forum for exchange of information and has proven adept at advancing free trade into new areas over the years. Much of the interchange takes place at the ministerial level or below, with planned twice-yearly meetings of ministers switching between the nations’ capitals and a range of ad hoc and scheduled specialist meetings.

The level of leadership commitment in APEC is also relatively high, with meetings attended by heads of state as well as senior trade officials since the mid-1990s. It would be logical to assume that the frequency of these meetings has increased the information flow among members and has contributed to the coincident expansion of intraregional trade and investment flows; it is, though, difficult to demonstrate a clear causal link.

PTA Membership as Commitment to Free Trade. The effectiveness of the dispute settlement mechanism and the strength of the threat of exclusion are the two features of PTAs that determine the “commitment value” of member countries. A PTA with a multinational court to resolve disputes impartially and a credible sanction (such as exclusion) make it difficult for member countries to slacken on their PTA commitments. Member countries can then point to the difficulty of reneging on their commitments as evidence that they will fulfill the promises that they have made. The value of a PTA as “insurance” in the case of a trade war also depends on the mechanisms for punishing nations that go back on their promise of market access.

PTAs in the Asia and Pacific region generally lack institutionalized dispute resolution mechanisms, preferring instead that remedies be negotiated informally. For example, CER leaves dispute settlement to negotiations. While it is unlikely that Australia and New Zealand will dissolve the agreement and impose high trade barriers, there is no obvious institutional reason for their mutual commitment to free trade. Disputes in AFTA are resolved by bilateral negotiations with several levels at which appeals can be made.

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