Conclusion

In this paper, we have outlined the main trends and challenges associated with the rapid spread of Asian FTAs, and provided new evidence from firm surveys, analysis of agreements, and CGE results. The paper also considered political economy issues associated with FTA consolidation in Asia, and various competing proposals. The evidence highlights the shift in East Asia's trade policy that has occurred since 2000. With 54 concluded agreements, FTAs are assuming more importance as a tool of commercial policy in East Asia than ever before. A classic hub and spoke arrangement has developed whereby five large economies have emerged as hubs with their smaller neighbors as spokes. Furthermore, the Asian FTAs have maintained a strong cross-regional orientation, the trade coverage of FTAs has increased, and issues other than trade liberalization—such as investment, intellectual property rights, and labor issues—have been included.

The conclusion of a comprehensive Doha Round Agreement would be an invaluable contribution to Asian prosperity. But the outcome of the stalled global trade talks remains uncertain. With a large number of FTAs either under negotiation or proposed, Asian FTAs are here to stay. A pragmatic approach would be to maximize the benefits of FTAs while minimizing their costs. Based on the new evidence presented in the paper, some key elements of a pragmatic approach towards Asia's FTAs might include:

• improving use of FTAs at the firm level through increased awareness and strengthened institutional support systems, particularly for SMEs;
• tackling the Asian “noodle bowl” problem by encouraging rationalization of ROOs and upgrading ROO administration to best practice levels;
• encouraging better coverage of agricultural products in Asian FTAs and a gradual approach to agricultural trade liberalization;
• including WTO-plus provisions—particularly the four Singapore issues—in all future Asian agreements; and
• facilitating the creation of a region-wide agreement in East Asia—particularly a CEPEA—with appropriate sub-sequencing and support for dealing with development gaps among members.

While the economic case for a region-wide agreement such as a CEPEA is borne out by CGE analysis, political economy considerations remain likely to weigh heavily on the final outcome. A sequential approach of first creating a series of building blocks within Asia—deepening ASEAN economic integration, creating a CJK FTA, and developing an EAFTA before moving to a CEPEA—followed by connecting Asia with the US and Europe seems the most likely scenario. In conclusion, a bottom-up approach to a Doha Round Agreement emerges from the analysis.

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