Beyond the Uruguay Round: The Implications of an Asian Free Trade Area

76 Pages Posted: 20 Apr 2016

See all articles by Sherman Robinson

Sherman Robinson

International Food Policy Research Institute (IFPRI)

Jeffrey D. Lewis

World Bank - East Asia and Pacific Region

Zhi Wang

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS); World Bank - World Bank Institute (WBI); City University of Hong Kong

Date Written: June 1995

Abstract

The Pacific Rim members of the Asia Pacific Economic Cooperation (APEC) group have different views about the role each should play in fostering further trade liberalization. But at the November 1994 APEC meetings in Bogor they committed themselves to forming an APEC free trade area. The authors explore: 1) the impact of such a free trade area on trade, welfare, and economic structure of the Pacific Rim economies and the European Union; 2) the implications of forming a partial free trade area, excluding such potential partners as China, the Association of Southeast Asian Nations (ASEAN) economies, or the United States; 3) whether an APEC free trade area provides more benefits than full trade liberalization that includes the European Union. They analyze these issues using a multicountry, computable general equilibrium model to simulate alternative liberalized trade scenarios. Their findings are as follows. Under the base-case scenario (in which all tariff and most nontariff barriers are removed among the APEC countries, China, Japan, ASEAN, the Asian newly industrializing economies (NIEs), and the United States): all APEC countries gain in GDP and the excluded European Union loses sligthly. Gains are greatest for the poorer countries, for whom trade externalities are more significant. Trade expands greatly, and although there is some trade diversion away from the European Union and the rest of the world, that is swamped by the creation of trade within the free trade area. The U.S.-Japan trade balance improves only slightly (by $1.4 billion), and the U.S.-China balance are much larger, suggesting that changes in sectoral protection make movements in particular bilateral trade balances nearly impossible to predict. When one economy is excluded: there are gains from making the free trade area as broad as possible. Omitting any one region (China, the United States, or the ASEAN 4) makes that region significantly worse off and lowers the gains for all other members as well. The Asian NIEs have the most to gain from broad membership. Excluding China reduces Asian NIE gains by about half, and excluding the United States yields even greater declines. Excluding the United States has the worst impact on all other potential members, greater than the effect of omitting China or the ASEAN 4. The European Union is largely unaffected by different versions of the APEC free trade area. Global (versus regional) liberalization: global liberalization that includes the European Union is the best outcome in terms of world GDP and welfare. And all countries gain more from global liberalization than they do from joining an APEC free trade area alone. Forming a regional free trade area may be politically easier than continued global liberalization, but there are economic incentives for all parties to expand on the completed GATT round.

Suggested Citation

Robinson, Sherman and Lewis, Jeffrey D. and Wang, Zhi, Beyond the Uruguay Round: The Implications of an Asian Free Trade Area (June 1995). World Bank Policy Research Working Paper No. 1467, Available at SSRN: https://ssrn.com/abstract=636160

Sherman Robinson (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Jeffrey D. Lewis

World Bank - East Asia and Pacific Region

Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/jlewis

Zhi Wang

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States
202-694-5242 (Phone)
202-694-5793 (Fax)

World Bank - World Bank Institute (WBI)

1818 H Street, N.W.
Washington, DC 20433
United States

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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