The emerging role of the Asia- Pacific Trade Agreement in ... - Escap

The emerging role of the Asia-
Pacific Trade Agreement in
forging Asia-Pacific integration
Seminar on “the prospective benefits
of the APTA Membership for the Philippines”
24 August 2006
Tiziana Bonapace
Chief, Trade Policy Section
Trade and Investment Division, UNESCAP

RTAs in Asia and the Pacific
Trade agreements in UNESCAP region
90
80
78
70
60
Number
50
40
30
20
10
0
0 0 0 0 0 1 0 2 0
47-50 51-55 56-60 61-65 66-70 71-75 76-80 81-85 86-90 91-95 95-00 00-
present
12
17
Period
Source: APTIAD, UNESCAP Secretariat, http://www.unescap.org/tid/pta%5Fapp/

Evolution of Asia-Pacific Regionalism
Broadly 3 waves
First wave (50s/60s/70s):
– 1950 Conference on Asian/African cooperation in Bandung,
Indonesia, the precursor of the non-aligned movement.
– Import-substitution industrialization strategy becomes development
model. South-South cooperation based on strategic selection of tariff
liberalization among members to promote industrialization. Inward
looking with high tariff walls to keep out imports competing with
“infant industries”.
– First RTA signed in 1975: Bangkok Agreement
Second wave (80s/90s):
– unsustainability of import-substitution model, globalization
accelerates and results in north/south interdependence. Outwardoriented,
“open regionalism” i.e. faster liberalization among RTA
“friends” while at the same time lowering barriers to third parties

Second wave:
– Establishment of APEC based on non-discriminatory principles
in its strictest interpretation, conclusion of UR
– Rapid increase in membership to GATT/WTO.
– Regionalism and multilateralism enter golden age of mutually
supportive liberalization
Third wave (Late 1990s-present):
– financial crisis
– stalling of APEC process of liberalization
– stalwarts of MFN (Japan and Rok) turn regional, as well as
China who completes most difficult part of internal
transformation.
– New era of deep and wide economic partnership agreements,
with FTA as core, but much wider economic cooperation as well
– Bilateralism is key feature

E E C
B e la r u s *
R ussian
Federation
A r m e n ia
G e o r g ia
M ain regional integration arrangem ents of U N E SC A P m em bers
and associate m em bers
E C O T A
A f g h a n is t a n
A z e r b a ija n
S A F T A
B I M S T - E C
Iran (Islam ic
R e p u b lic o f )
M a ld iv e s
B h u t a n
Turkey
N e p a l
Turkm enistan
A P T A
C A E U
A S E A N
K a z a k h s t a n
K y r g y z s t a n
Tajikistan
U z b e k i s t a n
Pakistan
B a n g la d e s h
In d ia
Sri Lanka
L a o P e o p le ’s D e m o c ra tic R e p u b lic
C a m b o d ia
M
y a n m a r
A P E C
B runei D aru ssalam
In d o n esia
Thailand
C h in a
R e p u b lic o f K o r e a
M a la y s ia C h ile *
P h ilip p in e s
H ong Kong, China
Singapore
Japan
V ie t N a m M e x ic o *
R u s s ia n F e d e r a t io n
Taiw an Province of China*
U nited States of A m erica
Canada*
A N Z C E R T A
Peru*
P I C T A
N e w Z e a la n d
A u s tr a lia
M elanesian Spearhead G roup
P a p u a N e w G u in e a
Fiji
Solom on Islands
V a n u a t u
C o o k I s la n d s
K ir ib a t i
N a u r u
N iu e
Sam oa
Tonga
B lo c k r e f e r s t o
region al
arrangem ents
Source: U N ESCAP Secretariat
L in e r e fe r s to s o m e o f th e m a jo r
bilateral agreem en ts (cou n try-to-cou n try
or bloc-to-country) in force or under
negotiation
* B e la r u s , C h ile , C a n a d a , M e x ic o
and Peru are not ESCA P
m em bers or associated
m e m b e r s

New Age Regionalism: Where is Asia-Pacific Going?
A.Geographical Consolidation
Historical conflicts, wide variations in political, legal
systems, cultural values. Fear that integration will
become dysfunctional.
Expansion of EU membership a positive example of
geographical consolidation. More than 65 bilateral trade
agreements notified to WTO abrogated when EU
expanded
Crucial differences between EU and Asia
Customs Union vs FTAs. Geographical proximity much
more relevant for CU than FTAs. No example of CU
among geographically dispersed countries such as in
cross continental BTAs of Asia
Is Customs Union with common external trade policy
and deep integration sine qua non for geographical
consolidation?

Proliferation of RTAs/BTAs in the region with differing
provisions and overlapping membership, will make it
increasingly difficult for countries to effectively
manage them all…
Proliferation of RTAs has placed spotlight on
proliferation of RoO. . Now one of the most important
components of trade policy. Highly complex economic
effects potentially affecting outsoucing, , export and
investment decisions. Largely unstudied.
…There is a risk that trade will be
hindered rather than promoted

Integrating East, South-east and Central Asia
ECOTA
ECOTA
Afghanistan
Afghanistan
Islamic Rep. Rep. of of Iran Iran
Islamic Rep. of Iran
Turkmenistan Turkmenistan
CIS EU
EurAsEC
Belarus
Moldova
Ukraine
Armenia
Russian
Federation
Azerbaijan
Kazakhstan
Kyrgyzstan
Tajikistan
Uzbekistan
+ China
SCO
BSEC
Georgia
(Albania, Bulgaria,
Greece, Romania)
Turkey
APTA
China
+Republic
of Korea
Lao PDR
+Japan
AFTA
Indonesia
Malaysia
Philippines
Brunei Darussalam
Singapore
Viet Nam
Cambodia
Pakistan
India
Bangladesh
Sri Lanka
Thailand
Note: WTO members are in italics.
Armenia, Moldova, Ukraine: Observer
Status of EurAsEC
SAFTA
Maldives
Myanmar
Bhutan
Nepal
BIMSTEC
8

New Age Regionalism: Where is Asia-Pacific Going?
B. Functional cooperation and consolidation
Asia-Pacific could also evolve its own form of consolidation,
based on pragmatism, flexibility and outward orientation
which have served the region well up to now
Adoption of common framework of principles, practices and
procedures that puts regionalism as a building block of
multilateralism on a more solid and commonly shared
foundation
Rules of origin one key area.
Investment (proliferation of BITs) and coherence with
investment provisions in BTAs?

New Age Regionalism: Where is Asia-Pacific Going?
C. Integration through enhanced institutions
Numerous regional organizations such as UNESCAP, ADB,
ASEAN, SAARC APEC, Pacific Forum Secretariat are in good
position to draw out commonalities and work on common
principles, best practices, modal agreements.
Bold mandates and resources lacking, and more importantly,
these institutions are intergovernmental, member driven
Is there a need for a more formal supranational system of
regional governance or are current intergovernmental
institutions sufficient?
Can institution driven integration of EU offer useful example?
Need for balancing vision with realism: more effective use of
existing institutions. Cost effectiveness of creating new
institutions?
Deep policy, political and historical differences among countries
of the region might prevent supranational governance?

• To promote trade for development, there is
a need for geographical and functional
harmonization and consolidation of the
many RTAs through.…
• …the establishment of common principles,
practices, and operational procedures for
liberalization initiatives, in both trade and
investment
• As a first step, start with a comprehensive
framework on RoO

APTA: Basic facts about its members
Country
Population
(million)
Per
capita ($)
GDP
Growth
2004
Exports
Growth
1999-2003
Imports
Growth
1999-2003
Bangladesh 139 443 4.0 8.6% 6%
China 1,299 1,283 9.5 31.1% 37.3%
India 1,086 626 6.4 14.9% 12.9%
R.O.K 48 14,266 4.6 8.7% 12.3%
Sri Lanka 19 935 5.0 2.9% 3.0%
Lao PDR 6 419 6.0 5.3% 0.0%

Can APTA fulfill this role?
Signed in 1975 as an initiative of UNESCAP,
the Bangkok Agreement, now APTA, is Asia’s
oldest preferential trade agreement between
developing countries.
It aims to promote regional trade through an
exchange of mutually-agreed concessions.
Bangladesh, China, India, Republic of Korea,
Lao PDR and Sri Lanka are member
countries.

APTA: Measures of trade liberalization
(concessions)
• Concessions (Art. 5, Art. 7)
- product-by
by-product approach
- special concession to LDCs
e.g. Bangladesh, Lao PDR
• List of the Concessions …..

APTA: Measures of trade liberalization
• Gradual relaxation
of quantitative and non-tariff reduction
(Art. 6)
• Common rules of origin (Art. 8)
- introduced at the third round

APTA: Common rules of origin
APTA representing a wide spectrum of industrial development across
the region has evolved a set of common rules of origin, based on flat
percentage rate 45 per cent (35 per cent for LDCs) local content that
may imply an acceptable commonality
• If Value of domestic contents/ price >45%
- then the preferential treatment is awarded
• Domestic contents means materials, parts or
produce are originated from the member
countries
• In LDCs : 35%
• Full accumulation rule : Regional contents

Example 1: domestic contents
• Toothbrush of HS 9603 (From Sri Lanka to ROK)
• If the production composition is ……
- Granulate USD 30 from Singapore
- Nylon hair USD 10 from Japan
- Aluminium wire USD 20 from Sri Lanka
- Labor, overhead USD 20 from Sri Lanka
- Profit USD 20 from Sri Lanka
• Then, domestic contents : 60%(60/100)
Preferential treatment is awarded to Sri Lanka by
ROK

Example 2 (a): Cumulative rule
Sri Lanka
USD 40
ROK
USD 32
INDIA
Final price
USD 100
Singapore
USD 28
Aggregate content originating in the territory of the APTA
participating States is (40+32)/100=72%, which is more than
60% of its f.o.b. value. Then, cumulative rule of origin applies.

Example 2 (b): Cumulative rule
Sri Lanka
USD 10
ROK
USD 20
INDIA
Final price
USD 100
Singapore
USD 70
In this case, the cumulative rule of origin does not apply.

For APTA to fulfill this role, it needs
strengthening
• Launching fourth round:
– Deepening of concessions
– Expanding coverage: adoption of negative list (cover
“substantially all the trade”)
– Go beyond trade in goods: include NTMs, services and
possibly trade facilitation, IPR and investment
• Expanding membership
• Effective engagement of private sector
• Set up APTA Service Centre in ESCAP: resources required
• Develop data base for comparative analysis

Current trade between APTA members as a
percentage of total trade is on the whole
relatively low…
Exports in 2004 Imports in 2004
Value in million
USD
Share of total
export
Value in million
USD
Share of total
import
Bangladesh 131.7
1.7% 3618.6 31.2%
China 36447.1
6.1%
70019.5
12.5%
India Republic of Korea Lao PDR Sri Lanka All BA countries 8063.8
54267.7
12.9
445.6
99368.8
10.7%
21.4%
2.3%
7.7%
10.6%
9558.7 31522.6 123.1 2146.8 116989.3 9.6%
14.0%
11.1%
26.8%
12.1%
Source: Secretariat’s calculation based on Direction of Trade Statistics, IMF, 2005

...but trade potential is high
Ratio of potential intra-member trade
to existing intra-member trade
Bangladesh 25.0
China 5.1
India 8.5
Lao People’s s Democratic
Republic
43.7
Republic of Korea 3.7
Sri Lanka 40.0
Source: Mukherji, I.N. (2003), “The Bangkok Agreement: A Negative List Approach to Trade
Liberalization in Asia and the Pacific”. Paper prepared for the nineteenth session of the Standing
Committee of the Bangkok Agreement, Bangkok, 19-21 March 2003.
22

Expanding membership
Status: China’s accession in particular
makes membership more attractive to
countries in the region
Efforts are being taken to expand
membership. Mongolia and Pakistan have
indicated intention to join, others have
expressed interest
Next target: Central Asia

APTA in relation to selected regional trade agreements
APTA
China
Maldives
SAFTA
Pakistan
Bhutan
Nepal
Bangladesh
India
Sri Lanka
Lao PDR
Republic of
Korea
BIMSTEC
Myanmar
Thailand
APTA: Asia-Pacific Trade
Agreement
BIMSTEC: Bay of Bengal
Initiative for Multi-
Sectorial Technical and
Economic Cooperation
SAFTA: South Asia Free
Trade Area
represents major
bilateral trade
agreements under study,
under negotiation or
recently concluded.

Next steps: Evolve APTA as building
bloc of MTS and regional integration
• Launch of Fourth Round: deepening concessions
and expanding coverage
• Expanding membership through seminars and
research on implications
• Develop common frameworks for harmonization
and consolidation of RTAs and BTAs
• Engage private sector: Asia Pacific Business
Forum can be used

RoO are relatively liberal and flexible
Third Round of negotiations, led to tariff
concessions on more than 4000 items with date of
implementation by 1 September 2006.
A Fourth Round of preferential tariff negotiations
would be launched after implementation of Third
Round concessions.
In addition, as the scope of the Agreement is
expected to widen to include non-tariff barriers
and services, among others, region-wide
integration in trade will strengthen.

United Nations
ESCAP