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Facilitating the Establishment of an Asia-Pacific FTA

Nov 07 , 2014
  • Zhang Monan

    Senior Fellow, China Int'l Economic Exchanges Center

At present, regional Free Trade Associations (FTAs) have become indicators of world trade liberalization. Because of the stalemate of World Trade Organization Doha talks and the difficulties faced by the multilateral trade system, regional, trans-regional, bilateral and multilateral trade talks gradually have become a new mainstream trade tendency in the world. And because of them, the world’s economic, trade and investment patterns are fundamentally changing.

Asia takes the lead in the regional FTA tide. According to the statistics of the Asian Development Bank, Asian free trade agreements increased from 36 in 2002 to 109 in 2013. Another 148 free trade agreements are underway. These 257 agreements make Asia go far ahead of other regions in FTA, taking account of over 70% of the total regional trade in the world.

Of course, the prevalence of regional FTAs is based on the reality. Against the background of hard progress of WTO talks and the slow development of APEC trade and investment liberalization, FTAs sprang up among APEC members and each economy gradually turned to the small-scale multilateral trade liberalization. Particularly since the financial crisis, many FTAs have been reached in various and complicated forms, independent from each other.

The first form is the high-level TPP negotiation led by the US. Now the TPP negotiation has covered 12 countries. These countries account for 40% of the world total economic output and more than 30% of the world trade. But TPP is still too good to reach for most countries because a wide range of issues are involved such as service trade, rules of origin, trade remedy, technical trade barriers, competition policy, animal and plant quarantine, intellectual property right, government procurement, temporary entry, transparency and dispute resolution.

The second form is the Regional Comprehensive Economic Partnership (RCEP) negotiation among 10 ASEAN members China, India, Japan, South Korea, Australia and New Zealand. However, the US as the largest economy is not included, so a higher level of international trade rules may be hard to implement.

The third form is the FTA led by the Association of Southeast Asian Nations (ASEAN). The ASEAN free trade area is one of the early FTAs in Asia and has currently accelerated its economic integration process through these four respective agreements: CEPT-AFTA signed in 1992, AFAS in 1995, AICO in 1996 and AIA in 1998.

However, a comprehensive analysis of these three forms of FTA shows each free trade area’s inconsistency: the rules of origin; customs for the same product from different regions and countries; and the standards of safety, environment and market access. These inconsistencies inevitably increase the cost in foreign trade administration and trade and will not be beneficial to global trade efficiency enhancement and fair competition. Thus, it is urgent to incorporate all FTAs and promote trade integration in the Asia- Pacific area.

In promoting trade globalization and liberalization, China has consistently held its stand that multilateral trade is primary, and regional trade arrangements are supplementary. All kinds of free trade areas should adhere to the principles of opening up, transparency and non-discrimination. They should work towards the common multilateral rules and realize the organic incorporation of all free trade areas. If all regions act according to their own rules and exclude each other, it will be a step backward from the tendency of integration and globalization. It could tear apart the global value chain, multilateral rules, and give rise to protectionism as well.

On the other hand, the value chain is the basis of regional trade incorporation and the promotion of trade integration in Asia. In recent years, the world economic center gradually “moved east” and trade quickly grew. Statistics show that over the past 10 years, the proportion of Asian export to Europe and the US declined significantly while the proportion of intra-regional trade increased sharply. The intra-regional trade is closer, forming an Asian value chain centered on China and a “new geese model”.

Now the total economic output of Asia-Pacific region accounts for more than half of that of the world; the total trade of the region accounts for about 46% of that of the world and the proportion of the intra-regional trade reached as high as 67%. Since 2000, China’s trade with its neighboring countries grew from over 100 billion USD to 1.3 trillion USD. China has become the largest trading partner, the largest export market and the most important source of investment for many neighboring countries.

In the unprecedented Asian development tide, China plays a more and more prominent driving role. In the next five years, China will release a purchasing power of 64 billion RMB¥ and is expected to become the world largest-scaled import market and the fastest growing import market. China’s trade with the Asia-Pacific region along with a deepened industrial division has pushed the formation of a close value chain, industrial chain and supply chain. It is the common interest of the Asia-Pacific countries to establish FTAAP and realize the regional economic integration.

In this context, one of the core issues at APEC is to further promote trade and investment liberalization and establish a Free Trade Area of the Asian Pacific (FTAAP) to further facilitate the Asia-Pacific economic integration. At present, meeting of APEC ministers responsible for trade has already endorsed APEC Strategic Blueprint for Promoting Global Value Chain Development and Cooperation and the Strategic Framework on Measurement of APEC TiVA under GVCs. In a sense, they not only fix the current FTA standards in the Asia-Pacific region, but also are expected to facilitate the integration of Asia-Pacific trade and even the world trade on a larger scale, which will really push a new round of trade globalization and liberalization.

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