Regional Experiences in the Spread of FTAs: East Asia

Last week we showed you our new data visualization tool FTA Vis.

FTA Vis visualizes 789 trade agreements from 205 countries over the last 66 years. And each of these visualizations has its own story to tell. In today’s blogpost we want to tell you one final one of those thousands of stories.

But first, if you liked our data stories so far, check out this video the GED Team created for you summarizing the history of FTAs in just under 5 minutes:

East Asia’s Race to the Top

While it had engaged in almost no FTAs prior to the mid-1990s, East Asia is now at the forefront of FTAs worldwide. A 2011 WTO report notes that: “the countries of Asia have only recently become active in signing preferential trade agreements (PTAs). Over the last 10 years, countries in East and West Asia as well as Oceania have participated in almost half the PTAs concluded over that period (more than, for instance, Europe and CIS countries, which participated in one-third of agreements), while their participation in PTA activities in the 1990s barely reached 5 percent (only 6 out of 106 agreements).”

This fairly extreme case is interesting because it shows both that the domino effect does not only work through trade diversion, but also because it lets us see that independent historical events are also important to consider in the case of FTAs.

FTAs and the Game of Zones

First, in East Asia, the “domino effect” played a role in the spread of FTAs, but not only because countries feared trade diversion effects. With NAFTA’s success and the deepening of the European Community, East Asia was mostly worried that it would lose bargaining power in international trade negotiations. This embodies another way through which FTAs spread through a domino effect: by creating regional zones, they encourage the creation of other trade alliances elsewhere that do not want to be left out in the global power game. The proposed Regional Comprehensive Economic Partnership (RCEP) is clearly going in that direction as is the potentially even more comprehensive Free Trade Area of the Asia-Pacific (FTAAP) currently proposed by China.

The proliferation of FTAs in East Asia is also an interesting case because it was accelerated by independent events: the 1997 and 2008 financial crises. The former indeed “made it clear that Asian economies needed to work together in the area of trade and investment in order to sustain growth and stability by addressing common challenges”, while the latter showed that relying solely on Western markets may not prove a sustainable long-term solution.

“Noodle Bowl” instead of Unified Framework

Not only are there unique reasons for the spread of FTA’s, but also unique problems. Notably, the spread of FTAs in East Asia has been achieved mostly through bilateral agreements, as can be shown by playing FTA Vis. The lack of a unified framework for East Asia has created a unique problem of rule messiness known as “the noodle bowl” as a multitude of overlapping rules of origins (ROOs) raise transaction costs for small and medium-sized businesses.

Compared to the multilateral efforts made in Africa, Europe and North America, playing FTA Vis in Asia shows us the composite nature of FTAs, trapped between bilateral agreements and individual deals between the ASEAN community as a whole and non-ASEAN countries. We can exemplify this by looking at Singapore, which signed both, multiple deals with countries in Asia individually but also with the ASEAN community as a whole.

Looking at Asia shows us that the global spread of FTAs that started in the mid-1990s shows some common features worldwide (the domino effect notably), but it also may have regional causes and pose specific challenges.

Visit FTA VIS here and start exploring

Interested in more FTA VIS data stories? Read our last blogposts here and here if you haven’t already!

You want to learn how to use FTA VIS? Visit our YouTube Channel for a tutorial video as well as additional data stories.