Assessing Quality and Impacts of Major Free Trade Agreements

15:05-17:05 Panel Discussion

Session Chair: URATA Shujiro (Faculty Fellow, RIETI / Professor, Graduate School of Asia Pacific Studies, Waseda University) Panelists: Myrna AUSTRIA (Full Professor, Department of Economics, De La Salle University) Inkyo CHEONG (Professor of Economics and Director for Center on FTA Studies, Inha University) Antoni ESTEVADEORDAL (Principal Advisor, Integration and Regional Programs Department, Inter-American-Development Bank) Christopher FINDLAY (Head and Professor, School of Economics, The University of Adelaide) NAKATOMI Michitaka (Director-General for International Trade Policy, METI) Presentation [PDF:646KB] Jeffrey J. SCHOTT (Senior Fellow, Peter G. Peterson Institute for International Economics) Robert SCOLLAY (Director, APEC Study Centre, and Associate Professor of Economics, The University of Auckland)

The panel discussion was divided into two parts. The former focused on problems of FTAs within the WTO framework, and the latter considered the problems of East Asian regional integration.

Professor URATA Shujiro, the coordinator of the first half, offered the following two points for discussion.

Strategies in FTA policies
Qualitative assessment of FTA policies

Professor Inkyo CHEONG (Inha University) reported on the progress of Korea's FTAs as follows. At the present time, Korea has concluded FTAs with Chile, Singapore and EFTA. Negotiations with ASEAN-9 and the United States are scheduled to be concluded by March 30. Also, Korea is now negotiating with India, Mexico, and Canada. The negotiations with Canada and Mexico appear to be waiting for the outcome of the Korea-U.S. FTA. Negotiations on the Korea-Japan FTA will be resumed after the agreement with the United States is completed. In its FTA strategies, the government of Korea introduced an "FTA roadmap" in 2003, and Korea's negotiations are following this roadmap (negotiations with Japan are lagging behind the roadmap schedule). According to the roadmap, Korea aims for high quality and comprehensive FTAs. Korea started with small- and medium-sized countries and later moved on to negotiating with large countries. Sensitive agricultural sectors, automobiles, and textiles have been excluded. The ratio of immediate elimination of tariffs will be raised from 85% to 90%.

Professor Christopher FINDLAY reported on Australia's FTAs as follows. Australia's long-standing FTA with New Zealand has served as a benchmark. In recent years, agreements have been concluded with the United States, Thailand, and Singapore. Australia is scheduled to start negotiations with ASEAN, China, and Japan. Australia's strategy is to simultaneously go forward on FTAs and the WTO in order to promote both liberalization and multilateralism. Another strategy is to establish certain principles first that would go into making a benchmark FTA, and to later expand the membership in this system.

Mr. NAKATOMI Michitaka (METI) reported on Japan's EPA initiatives as follows. At the present time, Japan has concluded agreements with Singapore, Mexico, Malaysia, the Philippines, and Chile. An agreement in principle has been reached with Thailand, Indonesia, and Brunei. Negotiations are proceeding with Korea, the whole of ASEAN, GCC, Vietnam, India, and Australia. Regarding the relation between the WTO and EPAs, Japan's EPA strategy advocates that EPAs and the WTO are the wheels of the same cart. The benefits of the WTO include universal membership, the existence of one set of rules and disciplines and the existence of dispute settlement mechanisms. In the future, Japan will pursue an ASEAN+6 EPA for East Asia. Beyond that, Japan needs to very carefully consider agreements with large countries and resource-rich countries, while keeping a close eye on progress made in the WTO round.

Dr. Antoni ESTEVADEORDAL reviewed the worldwide development of FTAs with special reference to comparisons between Asia and Latin America as follows. The start of Latin American FTAs is linked to trade and policy aspects of structural reform. In comparison, Asian FTAs are more related to reform, liberalization and markets. For the future, it will be necessary to differentiate between bilateral and regional FTAs, and to consider how these approaches can be used to link countries together.

Professor Myrna AUSTRIA reported on the Philippines' FTAs as follows. The only bilateral agreement that has been concluded is with Japan. Of course, the Philippines is a member of AFTA. Negotiations with the United States will begin in the future. One of the strategies for future FTAs is to maintain consistency with domestic policies for efficient distribution for achievement of global competition, sustained growth and the alleviation of poverty. Another policy is to go forward simultaneously with the mechanisms of WTO and FTAs. Both approaches have their merits. Bilateral agreements have many drawbacks, such as trade diversion effects.

Professor Robert SCOLLAY reported on the FTAs of New Zealand as follows. The FTA between New Zealand and Australia has a long history and goes beyond being a mere FTA. The agreement contains provisions concerning restrictions on labor, legal harmonization and common standards. In effect, the agreement has created a unified market. Because of its small domestic market, for New Zealand, FTA negotiations are easier to handle than WTO type multilateral negotiations. For this reason, New Zealand probably will not put too much pressure on WTO negotiations. While the New Zealand market appears to be integrated with the Australian market, competition also exists. Therefore, New Zealand needs to create new FTAs so as not to fall behind other countries. New Zealand would like to create an FTA that straddles ASEAN+6 and APEC.

Professor Jeffery J. SCHOTT reported on the FTAs of the United States as follows. Throughout the postwar era, the United States has made demands on all countries in multilateral negotiations. However, the initiative for NAFTA came from Canada. In its future policies, to avoid falling behind other countries, the United States will go forward in multilateral, regional and bilateral agreements, and will seek to achieve its political and economic goals in its foreign relations in this way.

Professor Urata offered the following two points for discussion.

Outlook for the establishment of regional FTAs
Obstacles to establishment and their solutions

Professor Cheong commented that the greatest obstacle is the existence of too many FTAs, and that the situation should be resolved through the creation of large regional FTAs. With regard to ASEAN, he commented that ASEAN+3 was more desirable that ASEAN+6. The reason given for this was that the process should be started with ASEAN+3 and later expanded to include other countries.

On the question of ASEAN+3 versus ASEAN+6, Professor Findlay commented that the judgment should be made on the basis of business environment and business conditions. He explained that the treatment of production networks and intra-regional trade would provide the criteria for making this decision. The question of whether to include the United States in the regional framework in the future would naturally be decided in this context.

Mr. Nakatomi agreed that business conditions should be taken into consideration. He explained that the level of East Asian intra-regional trade exceeds that of NAFTA and is now comparable to that of the EU, indicating that economic ties are already very strong. The next issue is whether progress can be made in directions corresponding to real economic conditions. In this context, an ASEAN+6 approach represents a fully viable network. Regarding the establishment of East Asia-ASEAN Economic Research Center, Mr. Nakatomi commented that Japan would support this initiative, and that such a center would play an important role in developing theoretical foundations for integration and a foundation for policy harmonization.

Dr. Estevadeordal reported on experiences pertaining to FTAA as follows. FTAA negotiations started in 1994 with the participation of South American countries, the United States, and Canada. This could not have been done without the bilateral cooperation that preceded it. At the present time, FTAA has become a blueprint for the directions to be taken by the region and is promoting bilateral negotiations. Therefore, without the basic concepts contained in FTAA, it may not have been possible to have the current developments.

Professor Austria expressed the following views. The ASEAN+6 framework represents an appropriate regional approach. However, due to the many different frameworks that exist in this region, it is important to immediately undertake studies to determine what is happening at the present stage and to build a common framework. It is also important to strengthen potential markets with an eye to problems related to rules of origin and their harmonization.

Professor Scollay expressed the following views. East Asia should take a step outside the region toward integration with the United States. The reason for this is that, given its enormous economic influence, it is questionable whether FTAs that exclude the United States are realistic. The most rational approach is to invite the United States to join a regional framework. Regional FTAs should be developed in view of the structure of the entire region.

Professor Schott expressed the following views. In East Asia, ideologies and ways of thinking differ from one country to another. Therefore, it is difficult to find quick solutions in East Asia. Ongoing WTO negotiations will have an impact on how these problems are resolved. As for APEC, there is a clash of political and economic interests among the various initiatives. Because a number of agreements are entangled within the region, agreements may not develop among partners in the same region. For this reason, ASEAN may become the center for integration, and it will also be important to see how rapidly China develops. Also, the Taiwan problem is not a problem that can be ignored.

In closing the panel discussion, Professor Urata commented on the need to continue research on the qualitative aspects of FTAs and their impact.