Free Trade Agreements versus Customs Unions: An Examination of East Asia
The spaghetti bowl phenomenon expected from the proliferating East Asian regional trade agreements (RTAs) is worrisome. In particular, the complicated web of hub-and-spoke type of overlapping free trade agreements (FTAs) can result in high costs for verifying rules of origin. As an alternative policy option to avoid the negative effect of trade deflection, customs unions (CUs) should be examined. Most of the theoretical analyses on the formation of CUs highlight stronger positive welfare effects compared to FTAs. However, there is a lack of empirical evidence to support the second-best theory of customs unions. This paper is an attempt to fill this gap by applying two methodologies: an ex ante simulation approach and an ex-post econometric approach. We quantitatively estimate the trade effect of CUs and FTAs by adopting a Gravity regression analysis. In general, we find that a CU is a superior type of RTA to an FTA in terms of creating more intra-bloc trade. In addition to analyzing the trade effects of RTAs according to type, we quantitatively evaluate the welfare and output effects of CUs for East Asia (an ASEAN+3 CU and a China-Japan-Korea CU) compared to FTAs by applying a computable general equilibrium model analysis. The East Asian CUs adopt a system of common external tariffs (CET) based on simple-averaged, import-weighted, consumption-weighted, and minimum rates. Overall, we find that the ASEAN+3 CU with the minimum CET are the most desirable type of RTA for both East Asian member countries and the world economy as a whole. (c) 2009 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.
Volume (Year): 8 (2009)
Issue (Month): 2 (June)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://www.mitpressjournals.org/loi/asep|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Arvind Panagariya, 2003.
"The Regionalism Debate: An Overview,"
- Ghosh, Sucharita & Yamarik, Steven, 2004. "Does trade creation measure up? A reexamination of the effects of regional trading arrangements," Economics Letters, Elsevier, vol. 82(2), pages 213-219, February.
- James E. Anderson & Eric van Wincoop, 2003.
"Gravity with Gravitas: A Solution to the Border Puzzle,"
American Economic Review,
American Economic Association, vol. 93(1), pages 170-192, March.
- James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
- James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
- Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
- Sarath Rajapatirana, 1995.
"The Evolution of Trade Treaties and Trade Creation: Lessons for Latin America,"
_005, World Bank Latin America and the Caribean Region Department.
- Rajapatirana, Sarath, 1994. "The evolution of trade treaties and trade creation : lessons for Latin America," Policy Research Working Paper Series 1371, The World Bank.
- Krueger, Anne O., 1997.
"Free trade agreements versus customs unions,"
Journal of Development Economics,
Elsevier, vol. 54(1), pages 169-187, October.
- Andrew K. Rose, 2004.
"Do We Really Know That the WTO Increases Trade?,"
American Economic Review,
American Economic Association, vol. 94(1), pages 98-114, March.
- Andrew K. Rose, 2002. "Do We Really KNow that the WTO Increases Trade?," Working Papers 182002, Hong Kong Institute for Monetary Research.
- Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
- Andrew K. Rose, 2002. "Do We Really Know that the WTO Increases Trade?," NBER Working Papers 9273, National Bureau of Economic Research, Inc.
- Baldwin, Richard, 2006.
"Managing the Noodle Bowl: The Fragility of East Asian Regionalism,"
CEPR Discussion Papers
5561, C.E.P.R. Discussion Papers.
- Richard E. Baldwin, 2008. "Managing The Noodle Bowl: The Fragility Of East Asian Regionalism," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 53(03), pages 449-478.
- Baldwin, Richard E., 2007. "Managing the Noodle Bowl: The Fragility of East Asian Regionalism," Working Papers on Regional Economic Integration 7, Asian Development Bank.
- Kawai, Masahiro & Wignaraja, Ganeshan, 2008. "Regionalism as an Engine of Multilateralism: A Case for a Single East Asian FTA," Working Papers on Regional Economic Integration 14, Asian Development Bank.
- Jong-Wha Lee & Innwon Park, 2005. "Free Trade Areas in East Asia: Discriminatory or Non-discriminatory?," The World Economy, Wiley Blackwell, vol. 28(1), pages 21-48, 01.
- Egger, Peter, 2000.
"A note on the proper econometric specification of the gravity equation,"
Elsevier, vol. 66(1), pages 25-31, January.
- Peter Egger, . "A Note on the Proper Econometric Specification of the Gravity Equation," WIFO Working Papers 108, WIFO.
- Baier, Scott L. & Bergstrand, Jeffrey H., 2007.
"Do free trade agreements actually increase members' international trade?,"
Journal of International Economics,
Elsevier, vol. 71(1), pages 72-95, March.
- Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," FRB Atlanta Working Paper 2005-03, Federal Reserve Bank of Atlanta.
- Innwon Park, 2006. "East Asian Regional Trade Agreements: Do They Promote Global Free Trade?," Pacific Economic Review, Wiley Blackwell, vol. 11(4), pages 547-568, December.
- Baldwin, Richard, 1993.
"A Domino Theory of Regionalism,"
CEPR Discussion Papers
857, C.E.P.R. Discussion Papers.
- Panagariya, Arvind & Findlay, Ronald & DEC, 1994. "A political - economy analysis of free trade areas and customs unions," Policy Research Working Paper Series 1261, The World Bank.
- Innwon Park, 2009.
"Regional Trade Agreements in East Asia: Will They Be Sustainable? ,"
Asian Economic Journal,
East Asian Economic Association, vol. 23(2), pages 169-194, 06.
- Park, Innwon, 2008. "Regional Trade Agreements in East Asia: Will They Be Sustainable?," MPRA Paper 5068, University Library of Munich, Germany.
- Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2001. "Impacts on NAFTA Members of Multilateral and Regional Trading Arrangements and Initiatives and Harmonization of NAFTA's External Tariffs," Working Papers 471, Research Seminar in International Economics, University of Michigan.
- Tubagus Feridhanusetyawan, 2005. "Preferential Trade Agreements in the Asia-Pacific Region," IMF Working Papers 05/149, International Monetary Fund.
- Syropoulos, Constantinos, 2003. "Rules for the disposition of tariff revenues and the determination of common external tariffs in customs unions," Journal of International Economics, Elsevier, vol. 60(2), pages 387-416, August.
- Haveman, J-D & Hummels, D, 1996. "Trade Creation and Trade Diversion : New Empirical Results," Papers 96-004, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
- Bhagwati, Jagdish & Greenaway, David & Panagariya, Arvind, 1998. "Trading Preferentially: Theory and Policy," Economic Journal, Royal Economic Society, vol. 108(449), pages 1128-48, July.
- Manchin, Miriam & Pelkmans-Balaoing, Annette O., 2007. "Rules of origin and the web of East Asian free trade agreements," Policy Research Working Paper Series 4273, The World Bank.
- Tran Van Hoa & Charles Harvie (ed.), 2008. "Regional Trade Agreements in Asia," Books, Edward Elgar Publishing, number 12577.
- Jong-Wha Lee & Innwon Park & Kwanho Shin, 2008.
"Proliferating Regional Trade Arrangements: Why and Whither?,"
The World Economy,
Wiley Blackwell, vol. 31(12), pages 1525-1557, December.
- Jong-Wha Lee & Innwon Park & Kwanho Shin, 2005. "Proliferating Regional Trade Arrangements: Why and Whither?," International Trade 0501010, EconWPA.
- Srinivasan, T-N, 1996.
"The Common External Tariff of a Customs Union : Alternative Approaches,"
755, Yale - Economic Growth Center.
- Srinivasan, T. N., 1997. "The common external tariff of a customs union: Alternative approaches," Japan and the World Economy, Elsevier, vol. 9(4), pages 447-465, December.
- Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
- Burfisher, Mary E. & Robinson, Sherman & Thierfelder, Karen, 2004. "Regionalism," MTID discussion papers 65, International Food Policy Research Institute (IFPRI).
- Magee Christopher S, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-19, December.
- Plummer, Michael G., 2006. "An ASEAN customs union?," Journal of Asian Economics, Elsevier, vol. 17(5), pages 923-938, November.
- Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
When requesting a correction, please mention this item's handle: RePEc:tpr:asiaec:v:8:y:2009:i:2:p:119-139. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)
If references are entirely missing, you can add them using this form.