Remarks by ADB President Haruhiko Kuroda at the Launch of Asia's Free Trade Agreements: How is Business Responding? on January 21, 2011 in Manila, Philippines
Members of the Board, colleagues and friends: Thank you very much for joining us today for the launch of "Asia's Free Trade Agreements: How is Business Responding?"
Asia's plethora of trade agreements has long been a topic of much debate. On the one hand, it is the spread of such agreements that has brought increased trade and greater prosperity to the region, especially in East Asia. On the other hand, the rapid spread of FTAs since 2000 has sparked concerns about the so-called 'Asian noodle bowl' effect of multiple, overlapping agreements, particularly on small and medium-sized enterprises. Concerns have also been expressed that the more recent wave of FTAs could undermine the multilateral trade liberalization process. Amidst slow progress in the WTO Doha trade talks, protectionism remains a risk to Asia's trade prospects.
I am very pleased to note that this is the first study of its kind to shed light on the FTA debate. And I want to congratulate ADB institute and our Office of Regional Economic Integration, led by Dr. Kawai and Mr. (Ganeshan) Wignaraja, for taking on this important initiative.
The study reveals some interesting facts. For example, while SME's are not unduly affected by the "noodle bowl" effect, they are nonetheless impeded by lack of information on the FTAs. They are also hampered by non-tariff measures, delays and administrative costs. Firms in East Asia need significantly more support to export through existing FTAs. As the number of FTAs grows and business increasingly uses FTA preferences, we may expect more concerns about the Asian noodle bowl to arise in the future.
There are several aspects to consider in untangling the noodle bowl over time so as to simplify and promote increased regional and global trade. As the study suggests, encouraging rationalization and flexibility of rules of origin, upgrading origin administration, improving business participation in FTA consultations, and strengthening institutional support systems for SMEs are among the practical steps the region can take. The study also suggests crafting a region-wide FTA and multilateralizing Asian regionalism in the long run.
A region-wide FTA would have clear economic benefits. It would, of course, increase market access to goods, services, skills and technology. It would also increase market size, permitting specialization and greater economies of scale. It would facilitate foreign direct investment and technology transfer, simplify tariff schedules as well as rules and standards, and help buffer against protectionist sentiments that pose a risk to Asia's trade and economic recovery.
Just as clearly, there are challenges to such an approach. A region-wide FTA would require increased administrative capacity, and increased resources to finance its implementation. It is important to integrate the process, as well as to deepen integration with services and reduce costs. It is also important to note that, while intraregional trade has grown substantially in East Asia, other subregions (such as South Asia) have experienced much weaker intraregional trade. This is important as the process of rebalancing growth in Asia moves forward.
I believe, however, these challenges could be overcome through political will and an appropriate strategy. ASEAN+6 and the Trans Pacific Agreement could serve as starting points and become the basis of a future free trade agreement encompassing all of Asia and the Pacific. Concluding the Doha Round and avoiding protectionism are, of course, vital.
In closing, I once again congratulate the authors and thank them for this important contribution. I believe that the practical measures outlined in the book will provide Asian leaders and administrators much food for thought in the months and years ahead.