Proliferating Regional Trade Agreements in East Asia: Why and Whither?

Searching for sustainable regional trade agreements (RTAs) for East Asia, we quantitatively evaluated the likely impact of proposed East Asian RTA strategies─(i) the AFTA (a being-leftalone strategy), (ii) an ASEAN Hub RTA (a hub-and-spoke type of overlapping RTA strategy), (iii) the AFTA vs a China-Japan-Korea RTA (a duplicating or competing RTA strategy), (iv) an ASEAN+3 RTA (an expansionary RTA strategy)─on the East Asian economies and the world economy with respect to consumption, production, volume of trade, and terms of trade effect by applying a multi-country and multi-sector CGE model. We found that there was no perfectly Pareto improving RTA strategy among the four different scenarios proposed for East Asia relative to the existing AFTA. However, the expansionary ASEAN+3 RTA can be a sustainable Pareto efficient policy option because the members’ gains were significantly positive enough with more evenly distributed gains between members. The effects on world welfare were also positive enough and the negative effect on nonmembers was not very significant. More interestingly, if the East Asian countries are willing to cooperate with their Pacific Basin partners to form an APEC level of RTA, the evolution toward a global trade bloc can be counted as a Pareto improvement for East Asian economies in every aspect we measure.