Promoting Regional Trade in Asia and the Pacific

ADB’s overarching goal of poverty reduction in Asia and the Pacific is contingent on the growth of small- and medium-size enterprises (SMEs) and regional trade among partners. The key objective is to boost productivity and help create more jobs for 750 million people. Essential to this is expanding and improving trade so the benefits can be shared by all economies in the region. 

Free trade agreements

With the continuous proliferation of free trade agreements (FTAs) in the Asia and Pacific region, the ARIC FTA database tracks and provides a comprehensive listing of all bilateral and plurilateral FTAs with at least one Asian country as signatory. It covers all agreements at all stages of development, from those under study or consultation to those in force. View database

Asia is already benefitting enormously from the many free trade agreements (FTA) passed over the last decade. But to continue doing so entails keeping pace with the changing face of the Asia and Pacific region and the manner in which financial and economic aid is delivered to those that need it most.

Rebalancing growth

"We must close the gap between Asia's surging economies and those mired in poverty by isolation, limited resources, miniscule trade and inadequate finance," ADB President Haruhiko Kuroda said at the 2011 Third Global Review Meeting of Aid for Trade in Geneva, Switzerland, in July 2011. "Better strategies are called for along with more aid for trade."

Asia is still home to the majority of the world’s extreme poor, despite bouncing back impressively from the global economic crisis. Prioritizing domestic and regional demand is high on the agenda of policymakers as they seek to rebalance sources of growth. Trade within Asia has also increased due to liberalization and improved supply chains and production networks.

With the increase in trade, countries have learned to take advantage of efficient infrastructure in order to develop and grow their industries. Some have also learned to diversify in order to spread risks and discover what they are good at.

Capitalizing on opportunities

There are many success stories within Asia that show how opportunities can spring from surprising places, in both industry and services. Capitalizing on opportunities will normally involve both private sector initiative and public sector support. And that nurturing an environment that spurs innovation and enterprise will often result in growth.

In the last couple of years, ADB looked at a new approach for urban development by supporting conditions for SMEs to flourish around industry clusters, and the vital role played by SMEs for sustainable growth and poverty reduction.

SMEs play a key role in employment and income generation in Asia, accounting for an estimated 90% of all businesses and 60% of the workforce. Unsurprisingly, SMEs have been hard hit by the global economic crisis which has seen regional exports slide and access to capital tighten.

Promoting the development of industry clusters in Asian cities, which has been done in India's Bangalore, PRC's Shenzhen, and Singapore, offers a potential solution. Research shows industry clusters offer significant economic and environmental advantages such as economies of scale, reduced transaction costs, and better management of industrial waste.

The city cluster economic development approach provides a strategy for creating industry clusters which can unleash the potential of SMEs, to contribute to sustainable growth and poverty reduction. 

The ultimate goal is to create an enabling environment for business which activates industrial growth, triggers local economic development and increases income and job opportunities.

Expanding trade

Trade and investment cooperation and integration is the second of four pillars in ADB’s regional cooperation and integration (RCI) strategy, providing the basis for ADB’s capacity development initiatives in regional trade.

RCI improves a poor country’s possibilities for growth by expanding trade and joint investment with its neighbors, strengthening transport and information connections, and improving its information and communication technology.

Building closer trade integration, intraregional supply chains, and stronger financial links with neighbors that are advancing more rapidly will allow smaller, slow-growth countries to speed their own expansion.

Progress in RCI has varied across regions. East Asian economies like the PRC, Republic of Korea, Thailand, and Singapore have been the leading players in the spread of the agreements, while others such as the Philippines have become increasingly active through the Association of Southeast Asian Nations (ASEAN). The agreements have all boosted trade within the region.

Open regionalism

Overall, Asia needs to consolidate all these free trade agreements in order to engage in “open regionalism,” keeping trade and investment links open with the rest of the world.

ADB’s role in trade and investment cooperation and integration, which is primarily of a non-lending nature, includes:

  • support to regional and subregional forums (such as ASEAN, ASEAN+3, SAARC, CAREC, GMS, BIMSTEC, and BIMP-EAGA) by playing a facilitating role in regional trade and investment policy dialogue
  • capacity and institutional development for DMCs on issues related to FTAs and trade facilitation
  • research and information dissemination, including support for establishing a database on FTAs in Asia and the Pacific
  • building stronger partnerships with other stakeholders and institutions that support RCI in trade and investment in Asia and the Pacific as well as elsewhere (e.g., WTO, World Bank, Inter-American Development Bank, OECD, ESCAP, and PECC).

Ending poverty in the Asia and Pacific region will be a historic achievement and is necessary for achieving the Millennium Development Goals at the global level. Establishing market-based economies across the region would help harmonize growth among DMCs and benefit the global economy by expanding trade and investment. This will be spurred by an environment designed to encourage new productive ideas to emerge and prosper, demonstrating that a vibrant industry is crucial for Asia’s growth.