Beyond free trade agreements: 21st Century choices for East Asian Economic Cooperation

Abstract

Economic cooperation, including in East Asia, involves more than trade liberalisation. Other opportunities for cooperation include the exchange of expertise and technology enhancing communications networks as well as cooperative arrangements to facilitate trade and investment. Many formal border barriers to trade have already been reduced to negligible levels. At the same time, political pressures continue to sustain high protection of a few sensitive sectors, especially in agriculture. In such circumstances, there is little need for formal agreements to liberalise trade in most products, while seeking such agreements to liberalise trade in sensitive sectors is likely to prove either impossible or divisive. It would seem more efficient to leave attempts to deal with sensitive sectors to the World Trade Organization (WTO), while pursuing cooperation among East Asian economies on other matters. Nevertheless, East Asian governments are preferring to follow the conventional wisdom that serious economic cooperation must start with a preferential trade arrangement (PTA). If these agreements merely meet the minimum requirements of the WTO, they will avoid the hard issues and it will not prove possible to link them to an East Asia-wide trading arrangement. They could make it harder to pursue other mutually beneficial opportunities for region-wide cooperation. Alternatively, East Asian leaders could adopt WTO-plus principles for their PTAs, along the lines recommended in this paper. These guidelines would require them to cover all products and to extend such liberalisation to other economies in the medium term. Such WTO-plus PTAs could be linked subsequently and could form part of broader efforts towards economic cooperation and integration. This paper spells out the multiple objectives of closer economic partnerships. These can be achieved only by careful assignment of alternative options for cooperation, ranging from bilateral to multilateral and from voluntary to formally binding arrangements. PTAs are one of these options; however, they can only be an efficient component of efforts to forge East Asia-wide cooperation if they are based on WTO-plus principles.