East Asian FTAs and Their Implications for Economic Welfare and Global Trade: The Domino Theory Revisited

Abstract

As the multilateral trade negotiations launched at Qatar in 2001 reeled from one collapse to another before stalling with no obvious end in sight in 2008, economies seeking new commercial opportunities turned en masse to the pursuit of bilateral and regional free trade agreements (FTAs). Indeed in the 84 months between the first hiccup in the Doha Round at Cancun in September 2003 and September 2010, 129 notifications of regional trade agreements were made to the WTO, compared to 95 in the prior history of the GATT/WTO. Of the 129 recent notifications, 38 involved an East Asian economy. As the East Asian web of trade agreements forms, the possibility of a formal pan-Asian agreement has also been raised. This chapter considers the economic and trade implications of the major East Asian economies forming a preferential agreement. On balance, the evidence suggests that once a critical mass of intra-East Asian trade is brought under preferential regimes, the pressure for a region-wide participation could well become irresistible – in short a domino effect could take off within the region. However, the same evidence points to the dynamic petering out in East Asia. As regards the potential for FTAs between the European Union and/or the United States with major East Asian economies such as Korea to trigger another set of dominos falling such that the major economies are led to form FTAs with each other, setting the stage in the fullness of time for a rationalization of the outcomes into a global (more or less) free trade area, it is far too early to tell; however, it will pay observers to watch closely the dynamic triggered by the Korea-EU FTA, if and when it comes into force.