Engine for Dynamism and Stability
Edited by Masahiro Kawai, Jong-Wha Lee, Peter A. Petri and Giovanni Capanelli
Masahiro Kawai and Ganeshan Wignaraja* INTRODUCTION 5.1 The recent advent of free trade agreements (FTAs) will likely have a marked impact on Asia’s trade policy and its cherished status as the global factory. This chapter deals with the spread of FTAs in economically important Asia since 2000, including the current FTA landscape, and considers the challenges that FTAs pose for business and public policy and what might be done to make Asian FTAs more multilateral-friendly. Three recent and interrelated developments provide the context for this chapter: First, the advanced production networks which underlie Asia’s spectacular global export success over the past several decades have deepened regionally (Kimura, 2006; ADB, 2008). Production networks have been broken into smaller steps, with each step located in the most cost-effective location, thereby further improving efficiency. Falling regional trade barriers and logistics costs, along with technological progress, underlie this trend. Intraregional trade in Asia has increased significantly, particularly in parts and components, and this trend may continue with further regional liberalization via FTAs. Second, East Asia – a relative latecomer to using FTAs as a trade policy instrument – is now at the forefront of global FTA activity with 54 concluded FTAs. The Association of Southeast Asian Nations (ASEAN) is emerging as the hub for Asia’s FTAs, with other major Asian economies joining the FTA bandwagon. Policy support for the deeper integration of production networks, regional integration efforts in other major markets, and the 1997/98 Asian financial crisis have spurred the growth of Asian FTAs (Urata 2004;...
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