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p. 66 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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Overlapping Memberships in PTAs and Multilateral Trading Arrangements

Within the Asia and Pacific region there is no common pattern to the extent of overlapping PTA membership. This is a concern, given fears concerning the debilitating effect that complex sets of overlapping regulations will have on future efforts to liberalize trade. Aside from common membership of APEC, most of the other common memberships involve bilateral agreements. This contrasts with the situation in most other regions, where overlapping membership is more common. SAPTA and SPARTECA members have relatively few commitments to other PTAs, most likely because these two agreements involve least-developed countries. The other PTAs in the Asia and Pacific region have a higher number of other commitments because of the extent of bilateral agreements among member countries and the AFTA countries’ membership of APEC.

Open Regionalism. APEC’s adherence to the principle of “open regionalism”—reliance on unilateral trade liberalization extended to members and nonmembers and on open membership—while sometimes criticized as being unrealistic, offers a unique policy orientation for a trading arrangement.⁶ While the exact nature of APEC’s trade liberalization agenda has been unclear, some analysts credit its efforts with contributing to the formation of FTAs among some of its member countries.

The PTAs in Asia and the Pacific tend to be fairly outward looking, with a large percentage of members’ trade going to nonmember countries. This reflects the region’s strong ties to the US, Europe, and some Latin American markets. Of all the PTAs reviewed, AFTA and APEC members have the strongest links to the international economy as reflected by the ratio of exports to GDP. Among regional PTAs, CER, SAPTA, and SPARTECA have relatively low ratios of exports to GDP (Table 3.7).

Bilateral PTAs. Bilateral PTAs are also common among DMCs, especially among India and its neighbors and among the Central Asian DMCs. India gives duty-free access to products from Bhutan, Nepal, and concessionary customs duties to products from Bangladesh. The list of Central Asian bilateral agreements is quite long (the following include only those that involve WTO countries and have thus been notified to WTO). Bilateral agreements between Azerbaijan and Georgia, and Kazakhstan and Turkmenistan were negotiated in the second half of the 1990s after the goal of CIS-wide economic cooperation failed to materialize. The individual agreements borrow from the CIS institutions—rules of origin, for example, are based on CIS guidelines. The Kyrgyz Republic was also highly involved in bilateral agreements and has reported PTAs with Armenia, Kazakhstan, Moldova, the Russian Federation, Tajikistan, Ukraine, and Uzbekistan.⁷ Other bilateral arrangements in the region include PTAs between the Lao People’s Democratic Republic (Lao PDR) and Thailand, and between New Zealand and Singapore, as well as CER.

Subregional Economic Zones. While the formal national-level trade agreements have attracted the most attention, significant efforts have been made to facilitate trade via subregional economic zones (SREZs) and infrastructure policies. SREZs generally consist of parts of several countries and most of the emphasis is on building infrastructure, reducing “red tape,” and harmonizing standards between the subnational regions considered.

There are two main kinds of SREZ in the Asia and Pacific region: growth zones, and corridors. The general aim of a growth zone is to take advantage of the differential mobility of capital and labor to reduce the cost of manufacturing. Participants come together by geographic proximity so that there are low transport costs, but they are separated by policy barriers so that there are wage differentials to be exploited. The focus is on streamlining the movement of capital and of raw inputs to take advantage of the differences in labor endowments (Yuan 1997). The Johor-Riau-Singapore growth zone, for example, brings together semiskilled labor from Malaysia, low-cost land and labor from Indonesia, and capital from Singapore. The Brunei-Darussalam, Indonesia, Malaysia, and Philippines East ASEAN Growth Area (BIMP-EAGA) focuses on sector cooperation in mineral, forest, and marine resources. The Tumen River Area Development, consisting of parts of the PRC, Democratic People’s Republic of Korea, and the Russian Federation, centers on the development of a free trade zone.

The principle behind the corridor concept is that it is important to create infrastructure links to bring together areas with economic complementarities between labor, land, and other factors. In the case of the four-country East-West Economic Corridor, for example, the Thai subregion is relatively abundant in skilled labor, while southern Myanmar, Savannakhet in the Lao PDR, and central Viet Nam have a scarcity of skilled labor but an abundance of natural resources. Wood processing and wood-based manufacturing have been identified as industries that could grow and be profitable if the two factor pools were joined. The potential gains from the SREZs are quite high. Analysis of the determinants of trade flows within Bangladesh, Bhutan, and India shows that attention to trade and facilitation measures in the South Asian Special Economic Zone (SASEZ) growth quadrangle is as important as further policy liberalization for increasing the flow of goods between these countries (RISNODEC 2001).

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