Back Matter

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ANNEX I

Country Membership

The Asia Pacific Economic Cooperation (APEC): Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong SAR, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Taiwan Province of China, Thailand, the United States, and Vietnam.

Agreement on South Asian Association for Regional Cooperation (SAARC) Preferential Trading Arrangement (SAPTA): Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

Association of Southeast Asian Nations (ASEAN): Brunei Darussalam, Cambodia, Indonesia, Lao P.D.R., Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

ASEAN-6: Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, and Thailand.

Bangkok Agreement: Bangladesh, China, Lao PDR, and Sri Lanka

Closer Economic Relation (CER): Australia and New Zealand.

Eurasian Economic Community (EAEC): Belarus, Kazakhstan, the Kyrgyz Republic, the Russian Federation, and Tajikistan.

European Union comprising 15 members (EU-15): Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

North American Free Trade Agreement (NAFTA): Canada, Mexico, and the United States.

Southern Common Market (Mercosur): Argentina, Brazil, Paraguay, and Uruguay.

Trans-Pacific Strategic Economic Partnership (TPSEPA): Brunei Darussalam, Chile, New Zealand, and Singapore.

ANNEX II

Summary of Recent Empirical Literature on Trade Creation vs. Trade Diversion in Asia

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1

The author is indebted to Emanuele Baldacci, Ben Bingham, Josh Felman, Tabagus Feridhanusetyawan, Mikis Hadjimichael, Hanks Peter Lankes, Brad McDonald, Lazaros Molho, Tom Rumbaugh, Jennifer Steele, Ben Sutton, Masahiko Takeda, Man-Keung Tang, Jérôme Vandenbussche, Shang-Jin Wei, and Yi Wu for their helpful comments. Special thanks to Tran Duc Minh, Fred Burke, Somchith Inthamith, Masahiro Kawai, Fukunari Kimura, Vo Tri Than, and all the other participants at the Conference “Accelerating Development in the Mekong Region—The Role of Economic Integration” held in Siem Reap (Cambodia) on June 26-27, 2006 for their valuable comments and suggestions.

2

By mid-2006, 211 preferential trade agreements were currently in force and notified to the WTO, with 27 of these notified over the past year. Another 65 were estimated to be operational but the WTO had not yet been notified.

3

See Feridhanusetyawan (2005) for a comprehensive outlook of the Asia and Pacific preferential trade agreements.

4

The Mekong 3 countries refer to Cambodia, Lao PDR, and Vietnam.

5

Rules of origin are established in free trade agreements to ensure that only goods originating in participating countries enjoy preferences.

6

These might include regulatory harmonization, infrastructure development, and collaboration among members to facilitate trade and transport.

7

The administrative costs associated in proving conformity to these rules may lead to low utilization of the preferential trade scheme. Moreover, rules of origin can lead to trade diversion if they oblige partners to buy higher-priced intermediate goods from a partner rather than on the lower-priced world markets.

8

See Baldwin (2006) on the fragility of East Asia regionalism caused by possible emerging tension among member countries.

9

To assess whether it would be preferable to consolidate the Asian RTA into a single free trade area is beyond the scope of this paper. However, the need for greater coherence among regional schemes in Asia especially on rules of origin has been recently advocated (Mr. H. Kuroda, President Asian Development Bank, at the 39th Annual Meeting, Hyderabad, India, May 6, 2006).

10

See Figure 1 for the preferential trade agreements involving Asia and Pacific countries.

11

All the variables are expressed in logs, with the exception of the variable on the common border, common language, and the RTA dummies.

12

RTA2-dummy takes the value 1 if both country i and j are members of the RTA, and zero otherwise. RTAimpdummy takes value 1 if the importing country i is a member of the RTA, while the exporting country j may or may not, and zero otherwise; and RTAexp takes value 1 when the exporting country j is a member of the RTA, while importing country may or may not be a member, and zero otherwise. Moreover, as the number of members in some RTAs was not constant over the sample period, as some countries acceded at a later stage, we had included in the RTA-dummies the countries according to the year when they joined the agreement.

13

In the extreme case of trade diversion the sum of the coefficient of RTAimp and RTAexp would be negative indicating that the RTA depresses country imports from the rest of the world more than it increases its exports to the rest of the world or vice versa, so that the net effect on trade flows between RTA members and the world is negative.

14

As the model was estimated in logs, the percentage change for a dummy is computed as [exp(dummy coefficient)-1]*100. In the case of ASEAN from Table 5 Regression 1: [exp(-0.473+1.256+0.683)- 1=3.3]*100=330. The sum of the three coefficients of the RTA dummies (γ1, γ2, and γ3) is called by Soloana and Winters (2003) gross intra-trade effect. The corresponding values are reported in Table 6.

15

[exp(-0.188+1.276+0.749)-1=5.2].

16

[exp(0.195+0.579+0.163)-1=1.5].

17

More advanced economies according the theoretical underpinnings behind the gravity model tend to specialize more and, therefore, trade more.

18

See Annex II for a summary of the recent empirical literature on gravity models in Asia.

21

Baldwin op.cit. and AsDB (2006).

Are Regional Trade Agreements in Asia Stumbling or Building Blocks? Implications for the Mekong-3 Countries
Author: Ms. Patrizia Tumbarello