How is Business Responding?
- ADBI series on Asian Economic Integration and Cooperation
Edited by Masahiro Kawai and Ganeshan Wignaraja
Masahiro Kawai and Ganeshan Wignaraja SUMMARY AND FUTURE AGENDA Since the beginning of this millennium, East Asia has emphasized the importance of free trade agreement (FTA)-led regionalism alongside a long history of strong multilateralism and outward orientation. Dubbed the global factory, this region has seen a rapid increase in FTAs since 2000. Major East Asian economies like Japan, the People’s Republic of China (PRC), the Republic of Korea (hereinafter Korea), Thailand and Singapore have become the leading players in the spread of FTAs while others have become increasingly active through the Association of Southeast Asian Nations (ASEAN). Slow progress in the World Trade Organization (WTO) Doha Development Round of trade negotiations and a plethora of agreements under negotiation suggest that FTAs will remain a central plank in the region’s commercial policies. The region’s new multitrack trade policy necessitates adjustments in business strategies and national economic policies. These developments have sparked a lively debate on the business impact of FTAs in East Asia. Positions in the debate seem to have become polarized. One influential camp associates these agreements with harmful, systemic noodle bowl effects that raise transaction costs for small and medium-sized enterprises (SMEs). Furthermore, the potential for distortion of trade toward bilateral channels is linked to the possible erosion of the multilateral trading system. Another camp sees net benefits from FTAs and suggests that well-designed, comprehensive agreements can be a building block to multilateral liberalization. The resolution of the debate has been hampered by the absence of comprehensive information...
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