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p. 73 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 The Economic and Broader Effects of PTAS: Theoretical Arguments Effects of PTAs on Trade in Asia and the Pacific: Some Evidence Trends in Intrabloc Trade Trade Intensity Indices Gravity Model Estimation Beyond Gravity Models: Computable General Equilibrium Models Conclusions References

Asian Development Outlook 2002 : III. Preferential Trade Agreements in Asia and the Pacific : Effects of PTAs on Trade in Asia and the Pacific: Some Evidence

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Trends in Intrabloc Trade

One way to examine the tendencies for trade to flow among members of a given group or region is by examining intrabloc trade shares. Numerous factors influence trading patterns and PTA membership is only one of them. If the share of intrabloc trade were to increase dramatically after the formation of a PTA, it would be plausible to conclude that this may come at the expense of nonmembers through trade diversion. On the other hand, PTAs could, by facilitating trade, bring about an increase in trade with nonmembers as well as within the bloc.

Table 3.9 compares intrabloc trade flows of PTAs over the last 20 years, and shows that PTAs in the Asia and Pacific region are highly diverse. The region includes the PTA with the highest intrabloc trade share—although APEC’s large shares predate the formation of the arrangement and can be attributed to the large size of the countries involved—as well as some of the PTAs with the smallest intrabloc trade shares, such as CER, ECO, SAPTA, and SPARTECA. These results are not particularly surprising, given the looser nature of PTAs in the region as well as the member countries’ strong trade links with the US, Europe, and Japan. The outward orientation of other Asian PTAs is even higher. The slow implementation of intragroup trade preferences in ECO, for example, has contributed to the outcome that around 7% of members’ trade in 2000 was with other member countries, while CER’s and SPARTECA’s low degree of trade with members is most likely driven by Australia and New Zealand’s extraregional links. The smaller member states of SPARTECA appear to take advantage of their preferential access to Australian and New Zealand markets and are regionally oriented in their trade flows. The high percentage of intrabloc trade in APEC is an exception for the region, but this is obviously a consequence of the fact that the agreement includes Asian countries’ major extraregional trading partners.

The EU has fairly high intrabloc trade flows. In contrast, only around 12% of EFTA members’ trade was between members in 2000. The Andean Pact and Mercosur PTAs trade predominantly with countries outside of the PTA, which reflects the importance of the US as a trading partner in that region. In contrast, trade between NAFTA member countries is larger than trade with nonmembers. The intrabloc trade shares of PTAs worldwide—particularly AFTA and APEC—generally increased until the late-1990s and have leveled off since. One would typically expect moderate changes over time in the intra-PTA trade shares, and sharp changes in shares can usually be attributed to changes in the composition of the PTA. For example in 1994, Mexico joined Canada and the US in NAFTA; Cambodia, Lao PDR, Myanmar, and Viet Nam joined ASEAN between 1995 and 1998. In each of these cases, expanded membership of the PTA led to sharp increases in the within-bloc trade share.

There have been instances where intrabloc trade shares fell (e.g., ECO, Andean Pact, and Mercosur between 1998 and 2000) as a result of external shocks and institutional changes within the PTA. Political instability and economic restructuring in Central Asia combined with the lack of integration of ECO countries in the world economy explain the fall in the ECO trade share.

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