Bandar Seri Begawan, Brunei (BBN)-Countries outside the mega-regional trade agreements should link their trade and investment patterns to the Asia-Pacific region sooner rather than later, a report by the World Economic Forum (WEF) Global Agenda Council on Trade and Foreign Direct Investment said.
In the WEF report titled Mega-regional Trade Agreements: Game-Changers or Costly Distractions for the World Trading System?, Sherry Stephenson, senior fellow of the Geneva-based International Centre for Trade and Sustainable Development, said that countries outside the mega-regionals should find ways to connect with the said region as it will be more challenging for those countries to break into the supply chains in the future.
The Asian mega-regionals, which are the Trans-Pacific Partnership (TPP), Regional Comprehensive Economic Partnership (RCEP) and the China-Japan-South Korea Free Trade Agreement (CJK FTA), are expected to break trade silos and drive investment growth, reports The Brunei Times.
She pointed out that five Latin American countries – Chile, Colombia, Costa Rica, Mexico and Peru – are already working on new trade agreements to scale their economies and attract Asian investors.
“It may encourage countries outside of the Asian mega-regionals to think of trying to dock a future FTA with one of the major agreements,” she said.
According to her, the mega-regionals could also serve as models for the World Trade Organisation (WTO) to overhaul trading system or reflect the integrated 21st century trading economy.
She said World Trade Organisation members may find it easier to consider new frameworks.
“So many of its main traders are already experimenting with new rules and models for trade agreements,” Stephenson said.
She said the only thing that seems quite clear in this “moving picture” is that the Asia-Pacific region and its economies will be at the “heart of the action in this transformation.”
Stephenson added that members of the Asia-Pacific mega-regionals are already at the centre of current supply chains and source of demand.
A successful Regional Comprehensive Economic Partnership will bring two things. For one, this will significantly open the services market. It will also expand the operation of value chains further into Southeast Asian economies and, potentially, part of the Indian economy as well.
Stephenson also said that large agreements would “logically” benefit smaller countries more than the larger one.
She cited a 2011 study authored by Peter A. Petri, Michael G. Plummer and Fan Zhai entitled ‘The TPP and Asia-Pacific Integration: A Quantitative Assessment. The study said that the annual welfare gains for the TPP would rise to US$104 billion ($129 billion) in 2025.
The study also expects annual welfare gains for the RCEP to US$215 billion ($267 billion) by 2025.
The study also highlighted that an eventual ‘Free Trade Area of the Asia-Pacific’ agreement would generate US$862 billion ($1072 billion).
Stephenson said that trade diversion is not a worrying factor for countries outside the region.
This is because the economic stimulus provided by the TPP or RCEP could be considerable.
“The larger the mega-regional, the larger the beneficial impact will be on both members, global GDP and trade,” she said.
BBN/ANS-20Aug14-4:30pm (BST)
