East, South Asia Free-Trade Deal Could Generate $260 Billion in Extra Income

MANILA, PHILIPPINES – A free-trade agreement covering East and South Asia could generate around US$260 billion in additional income and pave the way for further cooperation between the two regions, says a new book from ADB.

The book, Pan Asian Integration: Linking East and South Asia, examines the growing trade ties between the two regions, including bilateral agreements, and estimates the potential gains and losses from widening those linkages. It also looks at the key obstacles to broader trade integration and the policy actions needed to overcome them.

The book, from ADB’s Office of Regional Economic Integration (OREI), contains contributions from eminent academics around the globe. It was edited by Joseph Francois, Professor in the Department of Economics at Johannes Kepler University, Linz, Austria; Pradumna B. Rana, Senior Fellow at the Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore; and Ganeshan Wignaraja, Principal Economist in ADB's OREI.

After decades of relative economic isolation from each other, trade between East and South Asia has surged recently, soaring by over $114 billion between 2000 and 2007 alone. However, the benefits have been spread unevenly, with the People's Republic of China and other East Asian nations gaining substantially, while South Asian economies, with the exception of India, have enjoyed only modest returns.

"A pan-Asian free-trade agreement would not only increase and broaden the benefits of trade for economic giants PRC and India, but would also help enormously the rest of the region, particularly smaller South Asian nations like Bangladesh, Nepal and Sri Lanka," says Mr. Wignaraja. "Moreover, it could do that with virtually no impact on large economies outside the region."

Conversely, separate regional trade agreements in South Asia and East Asia would bring far smaller benefits.

Realizing the full potential of closer trade relations between South and East Asia will be a challenge though. Countries need to further lower trade and nontariff barriers, boost investment in trade-linked infrastructure, and improve handling of cross-border goods and other administrative procedures to cut costs.

East and South Asia have been at the forefront of the global drive to establish free-trade agreements in recent years, with around 20 either signed, under negotiation, or proposed by the two regions as of January last year. These have been valuable at a time when global trade talks have faltered and protectionist sentiment is on the rise. However, the book notes such agreements need to be widened beyond goods to include services, investment and technology if they are to be effective "stepping stones" toward broader multilateral trade deals.