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<strong>The</strong> <strong>emerg<strong>in</strong>g</strong> <strong>role</strong> <strong>of</strong> <strong>the</strong> <strong>Asia</strong>-<br />
<strong>Pacific</strong> <strong>Trade</strong> <strong>Agreement</strong> <strong>in</strong><br />
forg<strong>in</strong>g <strong>Asia</strong>-<strong>Pacific</strong> <strong>in</strong>tegration<br />
Sem<strong>in</strong>ar on “<strong>the</strong> prospective benefits<br />
<strong>of</strong> <strong>the</strong> APTA Membership for <strong>the</strong> Philipp<strong>in</strong>es”<br />
24 August 2006<br />
Tiziana Bonapace<br />
Chief, <strong>Trade</strong> Policy Section<br />
<strong>Trade</strong> and Investment Division, UNESCAP
RTAs <strong>in</strong> <strong>Asia</strong> and <strong>the</strong> <strong>Pacific</strong><br />
<strong>Trade</strong> agreements <strong>in</strong> UNESCAP region<br />
90<br />
80<br />
78<br />
70<br />
60<br />
Number<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
0 0 0 0 0 1 0 2 0<br />
47-50 51-55 56-60 61-65 66-70 71-75 76-80 81-85 86-90 91-95 95-00 00-<br />
present<br />
12<br />
17<br />
Period<br />
Source: APTIAD, UNESCAP Secretariat, http://www.unescap.org/tid/pta%5Fapp/
Evolution <strong>of</strong> <strong>Asia</strong>-<strong>Pacific</strong> Regionalism<br />
Broadly 3 waves<br />
First wave (50s/60s/70s):<br />
– 1950 Conference on <strong>Asia</strong>n/African cooperation <strong>in</strong> Bandung,<br />
Indonesia, <strong>the</strong> precursor <strong>of</strong> <strong>the</strong> non-aligned movement.<br />
– Import-substitution <strong>in</strong>dustrialization strategy becomes development<br />
model. South-South cooperation based on strategic selection <strong>of</strong> tariff<br />
liberalization among members to promote <strong>in</strong>dustrialization. Inward<br />
look<strong>in</strong>g with high tariff walls to keep out imports compet<strong>in</strong>g with<br />
“<strong>in</strong>fant <strong>in</strong>dustries”.<br />
– First RTA signed <strong>in</strong> 1975: Bangkok <strong>Agreement</strong><br />
Second wave (80s/90s):<br />
– unsusta<strong>in</strong>ability <strong>of</strong> import-substitution model, globalization<br />
accelerates and results <strong>in</strong> north/south <strong>in</strong>terdependence. Outwardoriented,<br />
“open regionalism” i.e. faster liberalization among RTA<br />
“friends” while at <strong>the</strong> same time lower<strong>in</strong>g barriers to third parties
Second wave:<br />
– Establishment <strong>of</strong> APEC based on non-discrim<strong>in</strong>atory pr<strong>in</strong>ciples<br />
<strong>in</strong> its strictest <strong>in</strong>terpretation, conclusion <strong>of</strong> UR<br />
– Rapid <strong>in</strong>crease <strong>in</strong> membership to GATT/WTO.<br />
– Regionalism and multilateralism enter golden age <strong>of</strong> mutually<br />
supportive liberalization<br />
Third wave (Late 1990s-present):<br />
– f<strong>in</strong>ancial crisis<br />
– stall<strong>in</strong>g <strong>of</strong> APEC process <strong>of</strong> liberalization<br />
– stalwarts <strong>of</strong> MFN (Japan and Rok) turn regional, as well as<br />
Ch<strong>in</strong>a who completes most difficult part <strong>of</strong> <strong>in</strong>ternal<br />
transformation.<br />
– New era <strong>of</strong> deep and wide economic partnership agreements,<br />
with FTA as core, but much wider economic cooperation as well<br />
– Bilateralism is key feature
E E C<br />
B e la r u s *<br />
R ussian<br />
Federation<br />
A r m e n ia<br />
G e o r g ia<br />
M a<strong>in</strong> regional <strong>in</strong>tegration arrangem ents <strong>of</strong> U N E SC A P m em bers<br />
and associate m em bers<br />
E C O T A<br />
A f g h a n is t a n<br />
A z e r b a ija n<br />
S A F T A<br />
B I M S T - E C<br />
Iran (Islam ic<br />
R e p u b lic o f )<br />
M a ld iv e s<br />
B h u t a n<br />
Turkey<br />
N e p a l<br />
Turkm enistan<br />
A P T A<br />
C A E U<br />
A S E A N<br />
K a z a k h s t a n<br />
K y r g y z s t a n<br />
Tajikistan<br />
U z b e k i s t a n<br />
Pakistan<br />
B a n g la d e s h<br />
In d ia<br />
Sri Lanka<br />
L a o P e o p le ’s D e m o c ra tic R e p u b lic<br />
C a m b o d ia<br />
M<br />
y a n m a r<br />
A P E C<br />
B runei D aru ssalam<br />
In d o n esia<br />
Thailand<br />
C h <strong>in</strong> a<br />
R e p u b lic o f K o r e a<br />
M a la y s ia C h ile *<br />
P h ilip p <strong>in</strong> e s<br />
H ong Kong, Ch<strong>in</strong>a<br />
S<strong>in</strong>gapore<br />
Japan<br />
V ie t N a m M e x ic o *<br />
R u s s ia n F e d e r a t io n<br />
Taiw an Prov<strong>in</strong>ce <strong>of</strong> Ch<strong>in</strong>a*<br />
U nited States <strong>of</strong> A m erica<br />
Canada*<br />
A N Z C E R T A<br />
Peru*<br />
P I C T A<br />
N e w Z e a la n d<br />
A u s tr a lia<br />
M elanesian Spearhead G roup<br />
P a p u a N e w G u <strong>in</strong> e a<br />
Fiji<br />
Solom on Islands<br />
V a n u a t u<br />
C o o k I s la n d s<br />
K ir ib a t i<br />
N a u r u<br />
N iu e<br />
Sam oa<br />
Tonga<br />
B lo c k r e f e r s t o<br />
region al<br />
arrangem ents<br />
Source: U N ESCAP Secretariat<br />
L <strong>in</strong> e r e fe r s to s o m e o f th e m a jo r<br />
bilateral agreem en ts (cou n try-to-cou n try<br />
or bloc-to-country) <strong>in</strong> force or under<br />
negotiation<br />
* B e la r u s , C h ile , C a n a d a , M e x ic o<br />
and Peru are not ESCA P<br />
m em bers or associated<br />
m e m b e r s
New Age Regionalism: Where is <strong>Asia</strong>-<strong>Pacific</strong> Go<strong>in</strong>g?<br />
A.Geographical Consolidation<br />
Historical conflicts, wide variations <strong>in</strong> political, legal<br />
systems, cultural values. Fear that <strong>in</strong>tegration will<br />
become dysfunctional.<br />
Expansion <strong>of</strong> EU membership a positive example <strong>of</strong><br />
geographical consolidation. More than 65 bilateral trade<br />
agreements notified to WTO abrogated when EU<br />
expanded<br />
Crucial differences between EU and <strong>Asia</strong><br />
Customs Union vs FTAs. Geographical proximity much<br />
more relevant for CU than FTAs. No example <strong>of</strong> CU<br />
among geographically dispersed countries such as <strong>in</strong><br />
cross cont<strong>in</strong>ental BTAs <strong>of</strong> <strong>Asia</strong><br />
Is Customs Union with common external trade policy<br />
and deep <strong>in</strong>tegration s<strong>in</strong>e qua non for geographical<br />
consolidation?
Proliferation <strong>of</strong> RTAs/BTAs <strong>in</strong> <strong>the</strong> region with differ<strong>in</strong>g<br />
provisions and overlapp<strong>in</strong>g membership, will make it<br />
<strong>in</strong>creas<strong>in</strong>gly difficult for countries to effectively<br />
manage <strong>the</strong>m all…<br />
Proliferation <strong>of</strong> RTAs has placed spotlight on<br />
proliferation <strong>of</strong> RoO. . Now one <strong>of</strong> <strong>the</strong> most important<br />
components <strong>of</strong> trade policy. Highly complex economic<br />
effects potentially affect<strong>in</strong>g outsouc<strong>in</strong>g, , export and<br />
<strong>in</strong>vestment decisions. Largely unstudied.<br />
…<strong>The</strong>re is a risk that trade will be<br />
h<strong>in</strong>dered ra<strong>the</strong>r than promoted
Integrat<strong>in</strong>g East, South-east and Central <strong>Asia</strong><br />
ECOTA<br />
ECOTA<br />
Afghanistan<br />
Afghanistan<br />
Islamic Rep. Rep. <strong>of</strong> <strong>of</strong> Iran Iran<br />
Islamic Rep. <strong>of</strong> Iran<br />
Turkmenistan Turkmenistan<br />
CIS EU<br />
EurAsEC<br />
Belarus<br />
Moldova<br />
Ukra<strong>in</strong>e<br />
Armenia<br />
Russian<br />
Federation<br />
Azerbaijan<br />
Kazakhstan<br />
Kyrgyzstan<br />
Tajikistan<br />
Uzbekistan<br />
+ Ch<strong>in</strong>a<br />
SCO<br />
BSEC<br />
Georgia<br />
(Albania, Bulgaria,<br />
Greece, Romania)<br />
Turkey<br />
APTA<br />
Ch<strong>in</strong>a<br />
+Republic<br />
<strong>of</strong> Korea<br />
Lao PDR<br />
+Japan<br />
AFTA<br />
Indonesia<br />
Malaysia<br />
Philipp<strong>in</strong>es<br />
Brunei Darussalam<br />
S<strong>in</strong>gapore<br />
Viet Nam<br />
Cambodia<br />
Pakistan<br />
India<br />
Bangladesh<br />
Sri Lanka<br />
Thailand<br />
Note: WTO members are <strong>in</strong> italics.<br />
Armenia, Moldova, Ukra<strong>in</strong>e: Observer<br />
Status <strong>of</strong> EurAsEC<br />
SAFTA<br />
Maldives<br />
Myanmar<br />
Bhutan<br />
Nepal<br />
BIMSTEC<br />
8
New Age Regionalism: Where is <strong>Asia</strong>-<strong>Pacific</strong> Go<strong>in</strong>g?<br />
B. Functional cooperation and consolidation<br />
<strong>Asia</strong>-<strong>Pacific</strong> could also evolve its own form <strong>of</strong> consolidation,<br />
based on pragmatism, flexibility and outward orientation<br />
which have served <strong>the</strong> region well up to now<br />
Adoption <strong>of</strong> common framework <strong>of</strong> pr<strong>in</strong>ciples, practices and<br />
procedures that puts regionalism as a build<strong>in</strong>g block <strong>of</strong><br />
multilateralism on a more solid and commonly shared<br />
foundation<br />
Rules <strong>of</strong> orig<strong>in</strong> one key area.<br />
Investment (proliferation <strong>of</strong> BITs) and coherence with<br />
<strong>in</strong>vestment provisions <strong>in</strong> BTAs?
New Age Regionalism: Where is <strong>Asia</strong>-<strong>Pacific</strong> Go<strong>in</strong>g?<br />
C. Integration through enhanced <strong>in</strong>stitutions<br />
Numerous regional organizations such as UNESCAP, ADB,<br />
ASEAN, SAARC APEC, <strong>Pacific</strong> Forum Secretariat are <strong>in</strong> good<br />
position to draw out commonalities and work on common<br />
pr<strong>in</strong>ciples, best practices, modal agreements.<br />
Bold mandates and resources lack<strong>in</strong>g, and more importantly,<br />
<strong>the</strong>se <strong>in</strong>stitutions are <strong>in</strong>tergovernmental, member driven<br />
Is <strong>the</strong>re a need for a more formal supranational system <strong>of</strong><br />
regional governance or are current <strong>in</strong>tergovernmental<br />
<strong>in</strong>stitutions sufficient?<br />
Can <strong>in</strong>stitution driven <strong>in</strong>tegration <strong>of</strong> EU <strong>of</strong>fer useful example?<br />
Need for balanc<strong>in</strong>g vision with realism: more effective use <strong>of</strong><br />
exist<strong>in</strong>g <strong>in</strong>stitutions. Cost effectiveness <strong>of</strong> creat<strong>in</strong>g new<br />
<strong>in</strong>stitutions?<br />
Deep policy, political and historical differences among countries<br />
<strong>of</strong> <strong>the</strong> region might prevent supranational governance?
• To promote trade for development, <strong>the</strong>re is<br />
a need for geographical and functional<br />
harmonization and consolidation <strong>of</strong> <strong>the</strong><br />
many RTAs through.…<br />
• …<strong>the</strong> establishment <strong>of</strong> common pr<strong>in</strong>ciples,<br />
practices, and operational procedures for<br />
liberalization <strong>in</strong>itiatives, <strong>in</strong> both trade and<br />
<strong>in</strong>vestment<br />
• As a first step, start with a comprehensive<br />
framework on RoO
APTA: Basic facts about its members<br />
Country<br />
Population<br />
(million)<br />
Per<br />
capita ($)<br />
GDP<br />
Growth<br />
2004<br />
Exports<br />
Growth<br />
1999-2003<br />
Imports<br />
Growth<br />
1999-2003<br />
Bangladesh 139 443 4.0 8.6% 6%<br />
Ch<strong>in</strong>a 1,299 1,283 9.5 31.1% 37.3%<br />
India 1,086 626 6.4 14.9% 12.9%<br />
R.O.K 48 14,266 4.6 8.7% 12.3%<br />
Sri Lanka 19 935 5.0 2.9% 3.0%<br />
Lao PDR 6 419 6.0 5.3% 0.0%
Can APTA fulfill this <strong>role</strong>?<br />
Signed <strong>in</strong> 1975 as an <strong>in</strong>itiative <strong>of</strong> UNESCAP,<br />
<strong>the</strong> Bangkok <strong>Agreement</strong>, now APTA, is <strong>Asia</strong>’s<br />
oldest preferential trade agreement between<br />
develop<strong>in</strong>g countries.<br />
It aims to promote regional trade through an<br />
exchange <strong>of</strong> mutually-agreed concessions.<br />
Bangladesh, Ch<strong>in</strong>a, India, Republic <strong>of</strong> Korea,<br />
Lao PDR and Sri Lanka are member<br />
countries.
APTA: Measures <strong>of</strong> trade liberalization<br />
(concessions)<br />
• Concessions (Art. 5, Art. 7)<br />
- product-by<br />
by-product approach<br />
- special concession to LDCs<br />
e.g. Bangladesh, Lao PDR<br />
• List <strong>of</strong> <strong>the</strong> Concessions …..
APTA: Measures <strong>of</strong> trade liberalization<br />
• Gradual relaxation<br />
<strong>of</strong> quantitative and non-tariff reduction<br />
(Art. 6)<br />
• Common rules <strong>of</strong> orig<strong>in</strong> (Art. 8)<br />
- <strong>in</strong>troduced at <strong>the</strong> third round
APTA: Common rules <strong>of</strong> orig<strong>in</strong><br />
APTA represent<strong>in</strong>g a wide spectrum <strong>of</strong> <strong>in</strong>dustrial development across<br />
<strong>the</strong> region has evolved a set <strong>of</strong> common rules <strong>of</strong> orig<strong>in</strong>, based on flat<br />
percentage rate 45 per cent (35 per cent for LDCs) local content that<br />
may imply an acceptable commonality<br />
• If Value <strong>of</strong> domestic contents/ price >45%<br />
- <strong>the</strong>n <strong>the</strong> preferential treatment is awarded<br />
• Domestic contents means materials, parts or<br />
produce are orig<strong>in</strong>ated from <strong>the</strong> member<br />
countries<br />
• In LDCs : 35%<br />
• Full accumulation rule : Regional contents
Example 1: domestic contents<br />
• Toothbrush <strong>of</strong> HS 9603 (From Sri Lanka to ROK)<br />
• If <strong>the</strong> production composition is ……<br />
- Granulate USD 30 from S<strong>in</strong>gapore<br />
- Nylon hair USD 10 from Japan<br />
- Alum<strong>in</strong>ium wire USD 20 from Sri Lanka<br />
- Labor, overhead USD 20 from Sri Lanka<br />
- Pr<strong>of</strong>it USD 20 from Sri Lanka<br />
• <strong>The</strong>n, domestic contents : 60%(60/100)<br />
Preferential treatment is awarded to Sri Lanka by<br />
ROK
Example 2 (a): Cumulative rule<br />
Sri Lanka<br />
USD 40<br />
ROK<br />
USD 32<br />
INDIA<br />
F<strong>in</strong>al price<br />
USD 100<br />
S<strong>in</strong>gapore<br />
USD 28<br />
Aggregate content orig<strong>in</strong>at<strong>in</strong>g <strong>in</strong> <strong>the</strong> territory <strong>of</strong> <strong>the</strong> APTA<br />
participat<strong>in</strong>g States is (40+32)/100=72%, which is more than<br />
60% <strong>of</strong> its f.o.b. value. <strong>The</strong>n, cumulative rule <strong>of</strong> orig<strong>in</strong> applies.
Example 2 (b): Cumulative rule<br />
Sri Lanka<br />
USD 10<br />
ROK<br />
USD 20<br />
INDIA<br />
F<strong>in</strong>al price<br />
USD 100<br />
S<strong>in</strong>gapore<br />
USD 70<br />
In this case, <strong>the</strong> cumulative rule <strong>of</strong> orig<strong>in</strong> does not apply.
For APTA to fulfill this <strong>role</strong>, it needs<br />
streng<strong>the</strong>n<strong>in</strong>g<br />
• Launch<strong>in</strong>g fourth round:<br />
– Deepen<strong>in</strong>g <strong>of</strong> concessions<br />
– Expand<strong>in</strong>g coverage: adoption <strong>of</strong> negative list (cover<br />
“substantially all <strong>the</strong> trade”)<br />
– Go beyond trade <strong>in</strong> goods: <strong>in</strong>clude NTMs, services and<br />
possibly trade facilitation, IPR and <strong>in</strong>vestment<br />
• Expand<strong>in</strong>g membership<br />
• Effective engagement <strong>of</strong> private sector<br />
• Set up APTA Service Centre <strong>in</strong> ESCAP: resources required<br />
• Develop data base for comparative analysis
Current trade between APTA members as a<br />
percentage <strong>of</strong> total trade is on <strong>the</strong> whole<br />
relatively low…<br />
Exports <strong>in</strong> 2004 Imports <strong>in</strong> 2004<br />
Value <strong>in</strong> million<br />
USD<br />
Share <strong>of</strong> total<br />
export<br />
Value <strong>in</strong> million<br />
USD<br />
Share <strong>of</strong> total<br />
import<br />
Bangladesh 131.7<br />
1.7% 3618.6 31.2%<br />
Ch<strong>in</strong>a 36447.1<br />
6.1%<br />
70019.5<br />
12.5%<br />
India Republic <strong>of</strong> Korea Lao PDR Sri Lanka All BA countries 8063.8<br />
54267.7<br />
12.9<br />
445.6<br />
99368.8<br />
10.7%<br />
21.4%<br />
2.3%<br />
7.7%<br />
10.6%<br />
9558.7 31522.6 123.1 2146.8 116989.3 9.6%<br />
14.0%<br />
11.1%<br />
26.8%<br />
12.1%<br />
Source: Secretariat’s calculation based on Direction <strong>of</strong> <strong>Trade</strong> Statistics, IMF, 2005
...but trade potential is high<br />
Ratio <strong>of</strong> potential <strong>in</strong>tra-member trade<br />
to exist<strong>in</strong>g <strong>in</strong>tra-member trade<br />
Bangladesh 25.0<br />
Ch<strong>in</strong>a 5.1<br />
India 8.5<br />
Lao People’s s Democratic<br />
Republic<br />
43.7<br />
Republic <strong>of</strong> Korea 3.7<br />
Sri Lanka 40.0<br />
Source: Mukherji, I.N. (2003), “<strong>The</strong> Bangkok <strong>Agreement</strong>: A Negative List Approach to <strong>Trade</strong><br />
Liberalization <strong>in</strong> <strong>Asia</strong> and <strong>the</strong> <strong>Pacific</strong>”. Paper prepared for <strong>the</strong> n<strong>in</strong>eteenth session <strong>of</strong> <strong>the</strong> Stand<strong>in</strong>g<br />
Committee <strong>of</strong> <strong>the</strong> Bangkok <strong>Agreement</strong>, Bangkok, 19-21 March 2003.<br />
22
Expand<strong>in</strong>g membership<br />
Status: Ch<strong>in</strong>a’s accession <strong>in</strong> particular<br />
makes membership more attractive to<br />
countries <strong>in</strong> <strong>the</strong> region<br />
Efforts are be<strong>in</strong>g taken to expand<br />
membership. Mongolia and Pakistan have<br />
<strong>in</strong>dicated <strong>in</strong>tention to jo<strong>in</strong>, o<strong>the</strong>rs have<br />
expressed <strong>in</strong>terest<br />
Next target: Central <strong>Asia</strong>
APTA <strong>in</strong> relation to selected regional trade agreements<br />
APTA<br />
Ch<strong>in</strong>a<br />
Maldives<br />
SAFTA<br />
Pakistan<br />
Bhutan<br />
Nepal<br />
Bangladesh<br />
India<br />
Sri Lanka<br />
Lao PDR<br />
Republic <strong>of</strong><br />
Korea<br />
BIMSTEC<br />
Myanmar<br />
Thailand<br />
APTA: <strong>Asia</strong>-<strong>Pacific</strong> <strong>Trade</strong><br />
<strong>Agreement</strong><br />
BIMSTEC: Bay <strong>of</strong> Bengal<br />
Initiative for Multi-<br />
Sectorial Technical and<br />
Economic Cooperation<br />
SAFTA: South <strong>Asia</strong> Free<br />
<strong>Trade</strong> Area<br />
represents major<br />
bilateral trade<br />
agreements under study,<br />
under negotiation or<br />
recently concluded.
Next steps: Evolve APTA as build<strong>in</strong>g<br />
bloc <strong>of</strong> MTS and regional <strong>in</strong>tegration<br />
• Launch <strong>of</strong> Fourth Round: deepen<strong>in</strong>g concessions<br />
and expand<strong>in</strong>g coverage<br />
• Expand<strong>in</strong>g membership through sem<strong>in</strong>ars and<br />
research on implications<br />
• Develop common frameworks for harmonization<br />
and consolidation <strong>of</strong> RTAs and BTAs<br />
• Engage private sector: <strong>Asia</strong> <strong>Pacific</strong> Bus<strong>in</strong>ess<br />
Forum can be used
RoO are relatively liberal and flexible<br />
Third Round <strong>of</strong> negotiations, led to tariff<br />
concessions on more than 4000 items with date <strong>of</strong><br />
implementation by 1 September 2006.<br />
A Fourth Round <strong>of</strong> preferential tariff negotiations<br />
would be launched after implementation <strong>of</strong> Third<br />
Round concessions.<br />
In addition, as <strong>the</strong> scope <strong>of</strong> <strong>the</strong> <strong>Agreement</strong> is<br />
expected to widen to <strong>in</strong>clude non-tariff barriers<br />
and services, among o<strong>the</strong>rs, region-wide<br />
<strong>in</strong>tegration <strong>in</strong> trade will streng<strong>the</strong>n.
United Nations<br />
ESCAP