## 1. PTAs Involving Asia-Pacific Countries (June 2005)

## Source details

**Canonical URL:** [1. PTAs Involving Asia-Pacific Countries (June 2005)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05149.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05149.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05149.pdf.json)

---

### Introduction: context and evolution
- PTAs in the Asia-Pacific region have "proliferated rapidly for the past five years."
- PTAs include both regional trade agreements (RTAs) and bilateral trade agreements (BTAs).
- Prior to the late 1990s, few PTAs existed in Asia and the Pacific; momentum then favored multilateralism and APEC-style "open regionalism."
- APEC’s 1994 Bogor Declaration aims to form a free trade area in the Asia-Pacific region "by 2010 for developed countries and by 2020 for developing countries."
- APEC trade liberalization is based on concerted unilateral liberalization in accordance with the "most-favored-nation (MFN) principle"; decisions are by consensus and commitments undertaken on a voluntary basis.
- Recent PTAs are "preferential in nature" and thus "discriminate in favor of their members," representing a departure from APEC’s nonpreferential approach.

### Key factual findings on PTA proliferation and numbers
- "As of May 1, 2004, 208 PTAs have been notified to the GATT/WTO and have entered into force."
- "146 enter[ed] into force since January 1, 1995, when the WTO was established."
- The WTO "estimates that by the end of 2005, the number of PTAs may surpass 300."
- Since 1998 regional PTA activity accelerated:
  - "At least 15 PTAs involving Asia-Pacific countries have been established within the past five years."
  - "At least 30 new PTAs are under formal negotiations."
  - Therefore, "more than 45 new PTAs may be established in the Asian-Pacific Rim within a decade."
- Caveat: "the track record suggests that the period between the negotiation and the eventual implementation could be lengthy."

### Trade liberalization outcomes and regional integration
- Asia has "had a successful track record in pursuing nonpreferential trade liberalization."
- "Barriers to trade declined markedly," and Asia-Pacific trade regimes are "open or moderately open, with average tariffs below the world average and declining."
- "The value of both intra- and extra-regional trade increased remarkably for the last two decades," and trade has contributed significantly to output and growth.
- "The share of intra-regional trade in terms of total trade has continued to increase, except during the period of the Asian financial crisis in 1997–98."
- Figure 1 (East Asia) documents declining average MFN tariffs and rising regional exports as a percent of world exports for 1990-2003 (figure labels preserved as presented).

### Patterns, modalities, and directions of PTAs
- Rapid proliferation includes:
  - Bilateral agreements (BTAs) proliferating rapidly.
  - Initiatives to extend regional agreements to include additional countries (e.g., ASEAN negotiating with external partners).
- ASEAN+1 style examples:
  - ASEAN negotiating separately with Australia-New Zealand, China, India, Japan, and Korea; partners have "adopted AFTA’s framework" and "expanded liberalization to include investment, services, and to some extent, agriculture."
- Plurilateral example:
  - The Trans-Pacific Strategic Economic Partnership (TPSEPA) involves New Zealand, Singapore, Brunei Darussalam, and Chile and is distinct from the New Zealand–Singapore bilateral agreement.

### Regional role and likely near-term outlook
- "ASEAN is expected to play a significant role in the new network of PTAs."
- PTAs based on the "ASEAN+1 scheme are expected to dominate the development of Asia-Pacific trade agreements in the next decade."
- Paper focus: East Asia, with comparisons to agreements in the Americas and South Asia.

### Analytical implications and considerations
- Shift toward preferential arrangements departs from APEC principle of open regionalism and MFN-based liberalization.
- Preferential arrangements are layered onto a backdrop of generally declining trade barriers and increased trade integration.
- Implementation depth varies; many ASEAN+1 arrangements expand coverage beyond tariffs to include "investment, services, and to some extent, agriculture."

---

### Box 1. ASEAN and AFTA — background and design
- ASEAN formation and membership:
  - Formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
  - Brunei Darussalam joined in 1984, Vietnam in 1995, Myanmar and Lao PDR in 1997, Cambodia in 1999.
- AFTA announced by the first six members in 1992.
- AFTA design: Common Effective Preferential Tariff (CEPT) scheme; goods allocated to four lists:
  - Inclusion list: agreed reduction to 0–5 percent within ten years under the normal track and five to eight years under the fast track.
  - Temporary exclusion list (TEL): delay; three years after joining must gradually transfer goods from TEL to inclusion list.
  - Sensitive list (SL): member has eight years after joining to start reducing tariffs.
  - General exclusion list (EL): not subject to tariff reductions (examples: arms and ammunitions, goods of an artistic and historic nature).

### Box 1. ASEAN and AFTA — implementation progress and trade patterns
- By 2003:
  - ASEAN6 had included more than 99 percent of tariff items on the inclusion list, with intraregional tariff reduced to 0–5 percent; some commodities remained on the sensitive list but totaled less than 0.5 percent of all tariff items.
  - For ASEAN4 (Cambodia, Lao PDR, Myanmar, Vietnam), the inclusion list comprised about 72 percent of total tariff lines in 2003, up from about 57 percent in 2001.
- Two tiers of AFTA implementation: ASEAN6 and ASEAN4.
- Total ASEAN trade doubled over the past ten years (relative to source timeframe).
- Share of intra-ASEAN trade increased from about 18 percent in the early 1990s to about 22 percent in 2001 and remained relatively constant thereafter.
- For the newer ASEAN members, share of intra-ASEAN trade remained at more than 50 percent.

### Box 1. ASEAN+3, Chiang Mai Initiative, and fragmentation concerns
- ASEAN+3 (ASEAN + China + Japan + Korea) emerged after the Asian crisis; initially more focused on financial cooperation.
- Chiang Mai Initiative: regional system of currency swaps adopted by ASEAN+3 finance ministers in May 2000.
- Desire for an Asian Economic Community (AEC) expressed, but no clear format or negotiation modalities developed.
- Fragmentation ("spaghetti bowl") risk: likely near-term outcome is a complex web of intersecting bilateral, regional, and plurilateral trade agreements.

### Box 1. Tariff approaches, rules of origin, and sectoral exemptions (select findings)
- Tariff reduction approaches:
  - Negative list approach: reduce tariffs for all items except explicitly listed exceptions (AFTA, ASEAN-China, CER, Singapore-New Zealand, Singapore-Australia).
  - Positive list approach: reduce tariffs only for specific commodities listed (ASEAN-India, Singapore-Japan).
- Rules of origin:
  - AFTA and CER: relatively simple and liberal; common threshold around 40 percent local content; cumulative rules allowed.
  - NAFTA: restrictive, product-specific; regional value content thresholds of 50 percent or 60 percent depending on method; extensive product-specific rules.
  - Singapore-U.S. and Singapore-Japan: product-specific but more flexible than NAFTA; electronic products 35–60 percent in Singapore-U.S.; Singapore-Japan requires originating content no less than 60 percent for cited cases.
- Sectoral exemptions cited:
  - Indonesia’s textile and petrochemical products; Malaysia’s automotive products; Philippines’ cement sector.
  - Singapore-Japan excludes some agriculture and fisheries.
  - Korea-Chile excludes rice (Korea) and washing machines, refrigerators, rethreaded tires (Chile).

### Box 1. Tariff levels and degree of preferential margin — selected statistics (Table 4, 2002)
- AFTA (CEPT vs. MFN rates) — Simple Average MFN and distribution of percentage-point differences (percent of tariff lines in each category):
  - Brunei Darussalam: MFN 1.0; PTA MFN 3.1; 0 88.7; 0-10 2.1; 10-20 9.1; 20-40 0.1; 40+ 0.0
  - Cambodia: MFN 8.9; PTA MFN 17.3; 0 53.6; 0-10 32.0; 10-20 14.0; 20-40 0.4; 40+ 0.0
  - Indonesia: MFN 3.7; PTA MFN 7.3; 0 58.8; 0-10 38.3; 10-20 2.2; 20-40 0.5; 40+ 0.2
  - Philippines: MFN 4.2; PTA MFN 6.7; 0 62.8; 0-10 35.4; 10-20 0.4; 20-40 1.2; 40+ 0.1
  - Lao PDR: MFN 6.7; PTA MFN 10.3; 0 44.5; 0-10 52.7; 10-20 2.8; 20-40 0.0; 40+ 0.0
  - Malaysia: MFN 2.6; PTA MFN 8.2; 0 65.5; 0-10 10.2; 10-20 17.8; 20-40 6.0; 40+ 0.5
  - Myanmar: MFN 4.7; PTA MFN 5.5; 0 81.1; 0-10 18.9; 10-20 0.0; 20-40 0.0; 40+ 0.0
  - Vietnam: MFN 6.9; PTA MFN 15.8; 0 61.4; 0-10 18.6; 10-20 11.1; 20-40 8.8; 40+ 0.0
- NAFTA (NAFTA Tariff vs. MFN rates) — United States:
  - Imports from Mexico: MFN 0.4; PTA MFN 4.5; 0 36.8; 0-10 54.4; 10-20 7.4; 20-40 1.4; 40+ 0.0
  - Imports from Canada: MFN 0.1; PTA MFN 4.5; 0 35.6; 0-10 54.2; 10-20 8.4; 20-40 1.7; 40+ 0.1
- NAFTA — Mexico:
  - Imports from United States: MFN 0.5; PTA MFN 16.5; 0 2.4; 0-10 16.1; 10-20 59.8; 20-40 21.3; 40+ 0.3
  - Imports from Canada: MFN 0.5; PTA MFN 16.5; 0 2.4; 0-10 16.1; 10-20 59.8; 20-40 21.3; 40+ 0.3
- Sources for table: IMF Trade Policy Division Database and ASEAN Secretariat.
- Observations:
  - AFTA members’ average MFN rates tend to be less than 10 percent; the difference between MFN and preferential rates is generally 5 percentage points or less, except for newer members such as Cambodia, Lao PDR, and Vietnam.
  - AFTA members often apply preferential tariff rates multilaterally (on an MFN basis) to nonmembers; preferential and MFN rates are similar for a majority of tariff lines and when they differ the difference is generally less than 10 percentage points.

### Box 1. Commitments beyond tariffs and institutional features
- Rules of origin: AFTA/CER relatively liberal (~40 percent local content, cumulative allowed); NAFTA restrictive (50 percent or 60 percent regional value content thresholds).
- Commitments beyond tariffs include antidumping, safeguards, customs harmonization, competition policy, standards, services, and investment coverage—depth varies.
- Safeguard provisions vary by agreement: some agreements state no safeguards permitted (Australia-New Zealand, Singapore-New Zealand, Singapore-Australia), while others mention possible temporary safeguards (Singapore-Japan, Singapore-U.S., proposed ASEAN-China); NAFTA and some Americas agreements explicitly allow safeguards for damaging import surges.
- Institutional depth varies widely:
  - ASEAN secretariat coordinates but does not enforce.
  - CER monitored by Australia-New Zealand Affairs Secretariat.
  - Most Asia-Pacific PTAs lack supranational enforcement institutions; dispute resolution often informal.

### Box 1. Motivations for PTA proliferation
- Triggers and drivers:
  - APEC’s failure to deliver Early Voluntary Sector Liberalization (EVSL).
  - Failure of the 1999 WTO Ministerial Conference in Seattle.
  - Asian financial crisis prompting regional financial cooperation and a sense of East Asian economic identity.
  - Political and strategic considerations to cement relationships.
  - Economic motivations: speed, flexibility, tailoring of agreements; coverage of services, investment, and behind-border measures.
  - Domino effect: PTA formation inducing further agreements (e.g., sequence after ASEAN-China negotiations).

---

### Box 2. ASEAN and AFAS — objectives, design, and scope
- AFAS: signed by ASEAN members in 1995 to enhance cooperation in services and go beyond GATS.
- Adopted a positive list approach: members list horizontal and sector-specific national treatment and market access commitments in a schedule; commitments binding once listed but modifiable subject to rules.
- Three rounds of negotiations completed under AFAS, producing common subsectors to be liberalized.
- Current coverage: four packages of commitments involving subsectors in seven sectors: financial services, air transport, telecommunication, tourism, business services, construction, and maritime transport.
- Mutual Recognition Arrangements (MRAs) being negotiated for professional qualifications.

### Box 2. Implementation record, critiques, and factors for slow progress
- Critics: progress limited; request-and-offer format ineffective; commitments generally partial and heterogeneous across members.
- Factors contributing to delay:
  - GATS-plus incentives to wait for multilateral decisions.
  - ASEAN members that are GATS signatories cautious about GATS-plus AFAS offers.
  - Heterogeneous development among members complicates commitments.
  - Voluntary/flexible design reduces enforcement pressure and slows implementation.
- AFAS progress: slow; difficult to find subsectors with common commitments by all countries.

### Box 2. PTA provisions beyond tariffs and assessment of quality
- Most agreements include investment liberalization, trade facilitation, and economic cooperation measures; national treatment and investor protections common, including protections against expropriation and bans on performance-related investment restrictions.
- Trade facilitation: harmonizing customs, standards, technical barriers; examples include ASEAN Agreement on Customs and ASEAN Customs Vision 2020; CER includes harmonization of business laws and government procurement procedures.
- Determinants of successful PTAs:
  - (i) large and diverse membership;
  - (ii) low external MFN tariffs;
  - (iii) comprehensive coverage with few exemptions;
  - (iv) liberal rules of origin;
  - (v) inclusion of trade facilitation and cross-border competition measures.
- Empirical observations:
  - Welfare effects of PTAs are theoretically ambiguous and empirically difficult to measure; many PTAs are recent or not fully implemented.
  - Studies suggest gains from MFN-based liberalization have been far greater than those from preferential liberalizations.
  - Potential added value of recent PTAs arises from inclusion of sensitive sectors and behind-border measures (services, investment, trade facilitation), but specifics and timetables often lacking.

### Box 2. Risks, limitations, and potential negative outcomes
- Trade diversion risk increases with PTA proliferation, especially where MFN tariff rates are high and dispersed (China, Thailand, the ASEAN4, and South Asian countries cited).
- Administrative complications: overlapping and inconsistent rules of origin increase compliance costs.
- Production network impact: uncoordinated preferential proliferation could inhibit cross-border production networking by hampering use of intermediate inputs.
- Multilateral liberalization diversion: PTAs claiming "WTO-plus" may maintain exemptions leading to "WTO-minus" outcomes; institutional capacity for multilateral negotiations may be diverted to manage bilateral and regional agreements, potentially undermining Doha Round efforts.

### Box 2. Policy implications and recommendations (implied)
- To realize potential gains from PTAs, countries need:
  - Commitment to liberalize sensitive sectors such as agriculture and services.
  - Consistent provisions across overlapping PTAs to avoid administrative complexity and trade diversion.
  - Effective enforcement and monitoring mechanisms to ensure consistent implementation.
  - Institutional coordination among PTAs to harmonize rules of origin and behind-border measures.
  - Use PTAs to create momentum for MFN-based liberalization where feasible, to capture larger welfare gains.

---

### 1. Comprehensiveness: APEC addresses all impediments to achieving the long-term goal of free and open trade — principles and assessments
- APEC core principles:
  - 1. Comprehensiveness: APEC addresses all impediments to achieving the long-term goal of free and open trade.
  - 2. WTO consistency: Measures undertaken in the context of the APEC Action Agenda are consistent with the principles of the WTO.
  - 3. Comparability: APEC member economies endeavor to have comparable trade and investment liberalization and facilitation, taking into account the general levels achieved by each APEC economy.
  - 4. Nondiscrimination: Reductions in barriers to trade achieved through APEC are available to all APEC member economies and non APEC economies.
  - 5. Transparency: Laws, regulations, and administrative procedures that affect flows of goods, services, and capital are transparent.
  - 6. Standstill: APEC member economies do not take measures that increase levels of protection.
  - 7. Simultaneous start, continuous process, and differentiated timetables: Members simultaneously began liberalization and continuously contribute to the Bogor Goal.
  - 8. Flexibility: Members deal with liberalization flexibly, considering differing levels of development.
  - 9. Cooperation: Economic and technical cooperation contributing to liberalization and facilitation is actively pursued.
- Institutional features and processes:
  - APEC operates on nonbinding commitments, open dialogue, and equal respect for participant views.
  - Concerted unilateral liberalization: voluntary and nonbinding.
  - Accountability: Individual Action Plans and Collective Action Plans submitted annually.
  - Peer Reviews: voluntary, with formal teams and independent in-country research; APEC Business Advisory Council involved.
  - Market philosophy: trade liberalization in APEC is conducted on an MFN basis to support multilateral trade liberalization and the Bogor Goal.
  - Complementary measures: business facilitation and economic and technical cooperation to build capacity.
- Assessments:
  - Positive: APEC played an important role in creating pressure for trade liberalization in the mid–1990s; tariff reduction through the IAP was generally more progressive than WTO commitments; region appeared on track toward the Bogor Goal.
  - Criticisms: voluntary nature created problems; failure of EVSL in 1998; PTA proliferation casts doubt on APEC’s relevance in maintaining open regionalism.

### 1. Comprehensiveness: selected economic and trade indicators (selected figures from Appendix II)
- World: 15 12 2 2 4 19 19 19 6,077
- Australia: 6 4 1 1 1 16 18 34 20,351
- Brunei Darussalam: 3 3 1 2 4 84 33 118 12,930
- Cambodia: 18 16 3 2 6 44 58 102 297
- Canada: 6 4 1 2 4 36 31 67 23,562
- China: 18 11 2 2 5 26 22 48 989
- Hong Kong SAR: 0 0 1 1 1 125 128 254 23,466
- India: 35 29 5 2 8 10 12 23 471
- Indonesia: 13 7 1 2 4 30 19 49 930
- Japan: 6 5 1 2 4 10 8 18 31,241
- Korea: 13 12 2 2 5 30 27 57 11,500
- Lao, PDR: 10 10 1 3 7 19 31 50 325
- Malaysia: 9 8 1 2 4 99 79 178 3,880
- Mexico: 14 16 3 2 6 16 17 33 6,425
- Myanmar: 6 6 1 3 7 32 27 59 167
- New Zealand: 5 3 1 1 1 24 24 49 15,023
- Papua New Guinea: 21 6 1 1 1 60 47 107 505
- Peru: 13 10 2 1 2 14 13 27 2,018
- Philippines: 13 5 1 2 4 45 45 90 943
- Russian Federation: 13 11 2 2 5 31 18 49 2,392
- Singapore: 0 0 1 1 1 156 136 292 21,163
- Sri Lanka: 20 10 2 2 5 28 37 65 828
- Taiwan Province of China: 10 8 1 1 1 46 38 84 12,456
- Thailand: 17 14 2 2 5 52 50 102 1,994
- United States: 7 4 1 2 4 7 11 18 36,400
- Vietnam: 16 16 3 3 9 48 50 98 440
- Notes: Tariffs: 1=open, 5=restrictive; NTB: 1= open, 3 = restrictive; Overall: 1= open, 10 = restrictive.
- Sources for table: World Economic Outlook, World Development Indicators, and Trade Policy Information Database.

*Source: IMF Working Paper — "PTAs Involving Asia-Pacific Countries (June 2005)"*

### 1. PTAs Involving Asia-Pacific Countries (June 2005).............................................................7

### 1. PTAs Involving Asia-Pacific Countries (June 2005)

### Introduction: context and evolution
- Preferential trade agreements (PTAs) in the Asia-Pacific region have "proliferated rapidly for the past five years."
- PTAs include both regional trade agreements (RTAs) and bilateral trade agreements (BTAs).
- Prior to the late 1990s, there were few PTAs in Asia and the Pacific; momentum then favored multilateralism and APEC-style "open regionalism."
- APEC’s 1994 Bogor Declaration aims to form a free trade area in the Asia-Pacific region "by 2010 for developed countries and by 2020 for developing countries."
- APEC trade liberalization is based on concerted unilateral liberalization in accordance with the "most-favored-nation (MFN) principle"; decisions are by consensus and commitments undertaken on a voluntary basis.
- Recent PTAs are "preferential in nature" and thus "discriminate in favor of their members," representing a departure from APEC’s nonpreferential approach.

### Key factual findings on PTA proliferation and numbers
- "As of May 1, 2004, 208 PTAs have been notified to the GATT/WTO and have entered into force."
- Of those, "146 enter[ed] into force since January 1, 1995, when the WTO was established."
- The WTO "estimates that by the end of 2005, the number of PTAs may surpass 300."
- Since 1998 the region’s PTA activity accelerated: "At least 15 PTAs involving Asia-Pacific countries have been established within the past five years," and "at least 30 new PTAs are under formal negotiations."
- Therefore, "more than 45 new PTAs may be established in the Asian-Pacific Rim within a decade."
- Caveat: "the track record suggests that the period between the negotiation and the eventual implementation could be lengthy."

### Trade liberalization outcomes and regional integration
- Asia has "had a successful track record in pursuing nonpreferential trade liberalization."
- "Barriers to trade declined markedly," and Asia-Pacific trade regimes are "open or moderately open, with average tariffs below the world average and declining."
- "The value of both intra- and extra-regional trade increased remarkably for the last two decades," and trade has contributed significantly to output and growth.
- "The share of intra-regional trade in terms of total trade has continued to increase, except during the period of the Asian financial crisis in 1997–98."
- Figure 1 (East Asia) documents declining average MFN tariffs and rising regional exports as a percent of world exports for 1990-2003 (figure labels preserved as presented).

### Patterns, modalities, and directions of PTAs
- Rapid proliferation includes both:
  - Bilateral agreements (BTAs) proliferating rapidly.
  - Initiatives to extend regional agreements to include additional countries (e.g., ASEAN negotiating with external partners).
- Examples of ASEAN+1 style: ASEAN negotiating separately with Australia-New Zealand, China, India, Japan, and Korea; these partners have "adopted AFTA’s framework" and "expanded liberalization to include investment, services, and to some extent, agriculture."
- The Trans-Pacific Strategic Economic Partnership (TPSEPA) is an example of a plurilateral initiative distinct from existing bilateral agreements (TPSEPA involves New Zealand, Singapore, Brunei Darussalam, and Chile and is separate from the New Zealand–Singapore bilateral agreement).

### Regional role and likely near-term outlook
- "ASEAN is expected to play a significant role in the new network of PTAs."
- PTAs based on the "ASEAN+1 scheme are expected to dominate the development of Asia-Pacific trade agreements in the next decade."
- The paper's focus is on East Asia, while noting that some agreements in the Americas and South Asia are mentioned for comparison.

### Analytical implications and considerations (as presented)
- The shift toward preferential arrangements constitutes a departure from the APEC principle of open regionalism and MFN-based liberalization.
- Despite the proliferation of PTAs, the region's prior success with nonpreferential liberalization underlines that preferential arrangements are layered onto a backdrop of generally declining trade barriers and increased trade integration.
- Implementation and depth of PTAs vary; many ASEAN+1 arrangements expand coverage beyond tariffs to include "investment, services, and to some extent, agriculture."

*Source: IMF Working Paper — "PTAs Involving Asia-Pacific Countries (June 2005)"*

### Box 1. ASEAN and AFTA

### Box 1. ASEAN and AFTA

### Background and membership
- ASEAN formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand; Brunei Darussalam joined in 1984, Vietnam in 1995, Myanmar and Lao People’s Democratic Republic (PDR) in 1997, and Cambodia in 1999.
- The ASEAN Free Trade Area (AFTA) was announced by the first six members of ASEAN in 1992.
- Early ASEAN cooperation was political and security-oriented; economic initiatives (including AFTA) emerged after the Cold War.

### AFTA design: CEPT scheme and lists
- AFTA reduces intraregional tariffs and nontariff barriers (NTBs) through a Common Effective Preferential Tariff (CEPT) scheme.
- Each member allocates goods to one of four lists; lists determine tariff reduction schedules:
  - Inclusion list: goods with agreed reduction to 0–5 percent within ten years under the normal track and five to eight years under the fast track.
  - Temporary exclusion list (TEL): allows delay; three years after joining AFTA countries must gradually transfer goods from TEL to inclusion list.
  - Sensitive list (SL): items like unprocessed agricultural goods; member has eight years after joining to start reducing tariffs.
  - General exclusion list (EL): goods not subject to tariff reductions (e.g., arms and ammunitions, goods of an artistic and historic nature).

### Implementation progress and membership tiers
- By 2003, the first six ASEAN members had included more than 99 percent of tariff items on the inclusion list, with intraregional tariff reduced to 0–5 percent; some commodities remained on the sensitive list but totaled less than 0.5 percent of all tariff items.
- For the four newer members (Cambodia, Lao PDR, Myanmar, and Vietnam), the inclusion list comprised about 72 percent of total tariff lines in 2003, up from about 57 percent in 2001.
- Two tiers of AFTA implementation: ASEAN6 (original six) and ASEAN4 (newer four).

### Trade patterns
- Total ASEAN trade doubled over the past ten years (relative to the source’s timeframe).
- Share of intra-ASEAN trade increased from about 18 percent in the early 1990s to about 22 percent in 2001 and remained relatively constant thereafter.
- For the newer ASEAN members, the share of intra-ASEAN trade remained at more than 50 percent.

### ASEAN+3, Chiang Mai Initiative, and regional architecture
- ASEAN+3 (ASEAN + China + Japan + Korea) emerged after the Asian economic crisis; initially focused more on financial cooperation than on trade.
- ASEAN+3 finance ministers adopted a regional system of currency swaps through the Chiang Mai Initiative in May 2000.
- Asian leaders have expressed a desire to form an Asian Economic Community (AEC), but no clear format or negotiation modalities have been developed.

### Fragmentation concerns and the “spaghetti bowl”
- Concerns existed that large East Asia trade blocs combined with FTAA and EU agreements could produce a tripolar global trading system, but developments suggest such a system is not imminent.
- ASEAN+1 bilateral initiatives progressed rapidly; bilateral agreements across Asia-Pacific have proliferated.
- Likely near-term outcome: a complex web of intersecting bilateral, regional, and plurilateral trade agreements (the “spaghetti bowl”), with overlapping and intersecting PTAs.

### Tariff reduction approaches, transitional periods, and exemptions
- Two general approaches to tariff reduction:
  - Negative list approach: reduce tariffs for all items except explicitly listed exceptions (AFTA, ASEAN-China, CER, Singapore-New Zealand, Singapore-Australia).
  - Positive list approach: reduce tariffs only for specific commodities listed (ASEAN-India, Singapore-Japan).
- Common practice: set base tariff rates (usually MFN-applied rate at negotiation start) and adopt product-specific schedules.
- Transitional periods provided for countries needing more time (e.g., ASEAN4 given more time than ASEAN6).
- All agreements include exemption lists; agriculture commonly receives special treatment or is excluded.
- Examples of sectoral exceptions: Indonesia’s textile and petrochemical products, Malaysia’s automotive products, Philippines’ cement sector; Singapore-Japan excludes some agriculture and fisheries; Korea-Chile excludes rice (Korea) and washing machines, refrigerators, rethreaded tires (Chile).

### Tariff levels and degree of preferential margin (select statistics)
- AFTA members’ average MFN rates tend to be less than 10 percent; the difference between MFN and preferential rates is generally 5 percentage points or less, except for newer members such as Cambodia, Lao PDR, and Vietnam.
- AFTA members often apply preferential tariff rates multilaterally (on an MFN basis) to nonmembers; preferential and MFN rates are similar for a majority of tariff lines and when they differ the difference is generally less than 10 percentage points.

Key figures from Table 4 (The Difference Between Preferential and MFN Rates: Selected Countries, 2002):
- AFTA (CEPT vs. MFN rates) — Simple Average MFN and distribution of percentage-point differences (percent of tariff lines in each category):
  - Brunei Darussalam: MFN 1.0; PTA MFN 3.1; 0 (no difference) 88.7; 0-10 2.1; 10-20 9.1; 20-40 0.1; 40+ 0.0
  - Cambodia: MFN 8.9; PTA MFN 17.3; 0 53.6; 0-10 32.0; 10-20 14.0; 20-40 0.4; 40+ 0.0
  - Indonesia: MFN 3.7; PTA MFN 7.3; 0 58.8; 0-10 38.3; 10-20 2.2; 20-40 0.5; 40+ 0.2
  - Philippines: MFN 4.2; PTA MFN 6.7; 0 62.8; 0-10 35.4; 10-20 0.4; 20-40 1.2; 40+ 0.1
  - Lao PDR: MFN 6.7; PTA MFN 10.3; 0 44.5; 0-10 52.7; 10-20 2.8; 20-40 0.0; 40+ 0.0
  - Malaysia: MFN 2.6; PTA MFN 8.2; 0 65.5; 0-10 10.2; 10-20 17.8; 20-40 6.0; 40+ 0.5
  - Myanmar: MFN 4.7; PTA MFN 5.5; 0 81.1; 0-10 18.9; 10-20 0.0; 20-40 0.0; 40+ 0.0
  - Vietnam: MFN 6.9; PTA MFN 15.8; 0 61.4; 0-10 18.6; 10-20 11.1; 20-40 8.8; 40+ 0.0
- NAFTA (NAFTA Tariff vs. MFN rates) — United States:
  - Imports from Mexico: MFN 0.4; PTA MFN 4.5; 0 36.8; 0-10 54.4; 10-20 7.4; 20-40 1.4; 40+ 0.0
  - Imports from Canada: MFN 0.1; PTA MFN 4.5; 0 35.6; 0-10 54.2; 10-20 8.4; 20-40 1.7; 40+ 0.1
- NAFTA — Mexico:
  - Imports from United States: MFN 0.5; PTA MFN 16.5; 0 2.4; 0-10 16.1; 10-20 59.8; 20-40 21.3; 40+ 0.3
  - Imports from Canada: MFN 0.5; PTA MFN 16.5; 0 2.4; 0-10 16.1; 10-20 59.8; 20-40 21.3; 40+ 0.3
- Sources for table: IMF Trade Policy Division Database and ASEAN Secretariat.

### Rules of origin
- AFTA and CER: relatively simple and liberal rules; common threshold around 40 percent local content; cumulative rules of origin allowed.
- NAFTA: restrictive, product-specific rules; regional value content thresholds of 50 percent or 60 percent depending on method; more than 200 pages of product-specific rules.
- Singapore-U.S. and Singapore-Japan: product-specific rules of origin but more flexible than NAFTA; thresholds for electronic products and chemicals vary (examples cited: electronic products 35–60 percent in Singapore-U.S.; Singapore-Japan requires originating content no less than 60 percent).
- Bilateral accumulation is often allowed; full accumulation varies by agreement.

### Commitments beyond tariff reduction: NTBs, safeguards, antidumping, and services
- Many newer PTAs go beyond tariffs to include border measures (antidumping, safeguards) and behind-border measures (customs harmonization, competition policy, standards).
- Safeguards:
  - Australia-New Zealand, Singapore-New Zealand, Singapore-Australia: state no safeguard mechanisms permitted.
  - AFTA: does not mention safeguards.
  - Singapore-Japan, Singapore-U.S., proposed ASEAN-China: mention possibility of temporary safeguards during transition.
  - NAFTA and some Americas agreements explicitly give members the right to impose safeguards for import surges damaging domestic economies.
- Antidumping/countervailing duties/subsidies: most countries apply their WTO commitments to PTAs.
- Services and investment coverage varies by PTA; many agreements aim to liberalize services beyond GATS commitments, but depth and implementation vary:
  - AFAS (AFTA) follows a positive list approach and aims to go beyond GATS, but progress has been slow.
  - Singapore-U.S., CER, Singapore-Australia: negative list approach with market access provisions and the better of national treatment or MFN.
  - Singapore-Japan and others: positive list (GATS-style) approaches in some cases.
- Investment provisions in selected PTAs include:
  - AIA/AIA-related AFTA commitments aim for national treatment to ASEAN investors by 2010 and others by 2020; free flow of investment by 2020.
  - Singapore-U.S.: better of national treatment or MFN for investors, investor protection, transfer and remittance permitted, investor-state dispute settlement mechanism included.
  - Singapore-Australia and Singapore-Japan: national treatment with exceptions, transfer and remittance provisions, investor protections, and dispute settlement mechanisms; government procurement often excluded.

### Institutional arrangements and dispute settlement
- Institutional depth varies widely:
  - ASEAN: secretariat coordinates but does not enforce rules.
  - CER: implementation monitored by Australia-New Zealand Affairs Secretariat.
  - Most Asia-Pacific PTAs lack supranational institutions for enforcement and dispute resolution; disputes often resolved through informal consultations and negotiations.
- Negotiation formats vary: regional approaches (AFTA), regional frameworks with bilateral elements (ASEAN-China), mixed bilateral and regional (Japan).

### Motivations for PTA proliferation
- Triggers and drivers:
  - APEC’s failure to deliver Early Voluntary Sector Liberalization (EVSL), including failure to reach consensus on sector liberalization in 1997–1998.
  - Failure of the 1999 WTO Ministerial Conference in Seattle reduced confidence in the multilateral route and incentivized preferential routes.
  - The Asian financial crisis contributed to regional financial cooperation initiatives and a perceived need for East Asian economic identity and crisis mechanisms.
  - Political and strategic considerations: PTAs used to cement political relationships (examples: ASEAN formation, AFTA in 1992, ASEAN-China, Korea-Japan initiative).
  - Economic motivations: speed, flexibility, and ability to tailor agreements; PTAs covering services, investment, and behind-border measures.
  - Domino effect: PTA formation can induce others to join or form competing agreements (sequence after ASEAN-China negotiations: Japan, India, and Korea submitted similar proposals).

*Source: based in part on material from ASEAN Secretariat; content unit: Box 1. ASEAN and AFTA (IMF working paper).*

### Box 2. ASEAN and AFAS

### Box 2. ASEAN and AFAS

### AFAS: objectives, design, and scope
- AFAS is a an agreement on trade cooperation in services signed by ASEAN members in 1995.
- Objective: to enhance cooperation in the services sector among ASEAN members by eliminating intraregional trade restrictions and expanding the scope of liberalization beyond GATS.
- AFAS has adopted a positive list approach: ASEAN members are required to list their horizontal (all sectors) and sector-specific national treatment and market access commitments in a schedule that specifies the conditions for entry and treatment of foreign service vis-à-vis domestic providers in these sectors.
- Commitments are expected to be binding once listed, but they may be modified subject to certain rules.
- Negotiation progress: Three rounds of negotiations have been completed under AFAS, producing common subsectors to be liberalized.
- Current coverage: four packages of commitments involving various subsectors in seven sectors: financial services, air transport, telecommunication, tourism, business services, construction, and maritime transport.
- Mutual Recognition Arrangements (MRAs) are being negotiated to enable mutual recognition of qualifications of professional services suppliers by signatory member countries.

### Implementation record and critiques
- Critics argue progress has been limited and the request-and-offer format ineffective.
- Commitments are generally partial; it is difficult to find a subsector in which all countries make common commitments.
  - Example pattern: one country may make commitments on banking but not insurance; others have no commitments in either subsector but make commitments in security brokerage and dealing.
- Voluntary nature: the approach allows a country to make no commitments in certain sectors.

### Factors contributing to delay in AFAS
- The current GATS-plus approach creates incentives for countries to wait for every GATS decision before making any commitments to AFAS.
- ASEAN members that are signatories of GATS have been very cautious in committing to GATS-plus offers under AFAS and have made little progress in liberalizing trade in services.
- Heterogeneous development: different levels of economic development among ASEAN members create complications.
- Political economy and institutional capacity: voluntary and flexible design reduces enforcement pressure and can slow implementation.

### PTA provisions beyond tariff reduction (findings)
- Most agreements include investment liberalization, trade facilitation, and economic cooperation measures.
- Most agreements provide national treatment and legal and security protection for foreign investors from member countries, including protection against expropriation and nationalization and a ban on performance-related investment restrictions.
- Most agreements include trade facilitation measures (harmonizing customs, standards and conformances, technical barriers, and sanitary and phytosanitary measures).
  - Example: AFTA includes the ASEAN Agreement on Customs and ASEAN Customs Vision 2020 to harmonize and streamline customs procedures among ASEAN members.
  - CER includes harmonization of customs policies and procedures, harmonization of business laws, government procurement procedures, and industry assistance.
- Most regional trade arrangements include behind-border provisions such as mutual recognition and harmonization of competition policy, laws, standards, conformances, and technical barriers.
- Some agreements include provisions on government procurement, intellectual property, e-commerce, transportation, and communications.

### Assessment of PTAs: quality and determinants of success
- Determinants of successful PTAs identified in the literature:
  - (i) large and diverse membership;
  - (ii) low external MFN tariffs;
  - (iii) comprehensive coverage in terms of measures, sectors and products, with few exemptions;
  - (iv) liberal rules of origin; and
  - (v) inclusion of measures to facilitate trade and to promote cross-border competition.
- Well-designed agreements also need effective monitoring and enforcement mechanisms to ensure consistent implementation.
- Scores of Asia-Pacific PTAs are mixed against these benchmarks.
  - Bilateral agreements proliferating in recent years often lack "large and diverse membership."
  - Initiatives such as ASEAN+1 and ASEAN+3 perform better on membership diversity.
  - ASEAN6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) tends to apply preferential tariff reduction on an MFN basis, maintaining relatively low MFN external tariffs.
  - Many other countries continue to maintain high MFN external tariffs.
  - Some new bilateral agreements (e.g., Singapore-Japan and Singapore-United States) have comprehensive policy coverage including services, investments, and various behind-border measures.
  - Other Asia-Pacific PTAs are shallow, focusing mainly on goods and maintaining long lists of exemptions.
  - AFTA: low MFN tariff levels and liberal rules of origin but delayed inclusion of sensitive products; ASEAN+1 initiatives follow AFTA framework but maintain long lists of exemptions and weak commitments beyond market access for goods.
- Institutional features:
  - Many PTAs are flexible ("agree first, negotiate later") and weak in institutional arrangements (no enforcement, no supranational institution).
  - Flexibility preferred regionally due to political/strategic objectives, differing levels of development, cultural factors, and limited institutional capacity.
- Implementation can at times exceed commitments:
  - AFTA example: original design as tariff-reduction FTA with simple rules and clear timeframe led parties to feel no need for formal institutional setup; many AFTA members applied preferential tariff reductions on an MFN basis, indicating implementation exceeded original commitments.

### Effects of PTAs: empirical observations and considerations
- Broad caution: welfare effects of preferential arrangements are theoretically ambiguous and empirically difficult to measure; many PTAs are recent, negotiated, or not fully implemented.
- Asia-Pacific region has integrated vigorously in the absence of PTAs via unilateral liberalization over the last three decades.
  - Ng and Yeats (2003): East Asia’s share of global exports expanded more than three-folds, while intraregional exports, expressed as share of world trade, expanded more than six-fold during 1975–2001.
- Trade Intensity Index (TII) findings:
  - Studies indicate flows in the 1990s were not biased towards intrabloc trade, possibly reflecting limited trade diversion.
  - Intraregional trade increased rapidly, but intrabloc trade intensity declined because Asia-Pacific share in world trade increased even faster.
  - TIIs in Asia-Pacific PTAs are generally lower than those in Central and Latin America.
  - TII is generally lower in trade agreements with large and diverse membership such as APEC.
- Evidence comparing MFN vs preferential liberalization:
  - Studies suggest gains from MFN-based liberalization have been far greater than those from preferential liberalizations.
  - Examples: Young and Huff (1997), Gilbert, Scollay, and Bora (2001), Scollay and Gilbert (2001) show large welfare gains from APEC because tariff reductions were significant and MFN-based.
  - Feridhanusetyawan and Pangestu (2003) show gains from AFTA would have been much larger if MFN-based.
- Potential added value of recent PTAs:
  - Inclusion of sensitive sectors and provisions on services, investment, and trade facilitation could add value.
  - Some PTAs (e.g., ASEAN-China CEC) include agriculture; consistent implementation could create momentum for further agricultural liberalization.
  - Most PTAs include services, investment, and trade facilitation provisions, but often lack specifics and implementation timetables.
  - Experience of AFAS shows services liberalization has progressed only slowly.

### Risks, limitations, and potential negative outcomes
- Trade diversion risk:
  - Proliferation of PTAs increases bias toward intraregional trade and raises risk of trade diversion, especially where MFN tariff rates are high and dispersed.
  - MFN tariff levels remain relatively high in many participants (China, Thailand, the ASEAN4, and South Asian countries); unless PTAs spur MFN tariff reductions, trade diversion risk is significant.
- Administrative complications:
  - Overlapping and inconsistent rules of origin could emerge, increasing compliance costs and administrative burden.
  - Negotiating multiple bilateral agreements within and across regional agreements could create inconsistent provisions and complexity.
- Impact on production networks:
  - Preferential, uncoordinated proliferation could inhibit cross-border production networking by hampering seamless use of intermediate inputs due to inconsistent rules of origin.
- Multilateral liberalization diversion:
  - PTAs claiming "WTO-plus" commitments may maintain exemptions and specific treatments for sensitive sectors, yielding "WTO-minus" outcomes in practice.
  - Exemptions may set precedents and carry over across agreements.
  - All PTAs claim WTO-consistency, but no effective mechanism exists to confirm consistency with WTO principles.
  - Institutional capacity for multilateral negotiations may be diverted to manage bilateral and regional agreements, potentially undermining Doha Round efforts and multilateral liberalization.

### Policy implications and recommendations (implied by assessment)
- To realize potential gains from PTAs, countries need:
  - Commitment to liberalize sensitive sectors such as agriculture and services.
  - Consistent provisions across overlapping PTAs to avoid administrative complexity and trade diversion.
  - Development of effective enforcement and monitoring mechanisms to ensure consistent implementation.
  - Institutional coordination among PTAs to harmonize rules of origin and behind-border measures.
  - Use PTAs to create momentum for MFN-based liberalization where feasible, to capture larger welfare gains.

*Source: Box 2. ASEAN and AFAS, from the provided IMF content unit.*

### 1. Comprehensiveness: APEC addresses all impediments to achieving the long-term

### 1. Comprehensiveness: APEC addresses all impediments to achieving the long-term goal of free and open trade.

### APEC core principles (enumerated)
- 1. Comprehensiveness: APEC addresses all impediments to achieving the long-term goal of free and open trade.
- 2. WTO consistency: Measures undertaken in the context of the APEC Action Agenda are consistent with the principles of the WTO.
- 3. Comparability: APEC member economies endeavor to have comparable trade and investment liberalization and facilitation, taking into account the general levels achieved by each APEC economy.
- 4. Nondiscrimination: Reductions in barriers to trade achieved through APEC are available to all APEC member economies and non APEC economies.
- 5. Transparency: The laws, regulations, and administrative procedures in all APEC member economies that affect the flow of goods, services, and capital among APEC member economies are transparent.
- 6. Standstill: APEC member economies do not take measures that increase levels of protection.
- 7. Simultaneous start, continuous process, and differentiated timetables: APEC member economies simultaneously began the process of liberalization, facilitation, and cooperation and continuously contribute to the long-term goal of free and open trade and investment.
- 8. Flexibility: APEC member economies deal with the liberalization and facilitation process in a flexible manner, taking into account differing levels of economic development.
- 9. Cooperation: Economic and technical cooperation contributing to liberalization and facilitation is actively pursued.

### Institutional features, processes, and operational modalities
- APEC operates based on nonbinding commitments, open dialogue, and equal respect for the views of participants.
- Concerted unilateral liberalization: APEC member economies undertake trade and investment liberalization on a voluntary and nonbinding basis.
- Accountability and reporting:
  - Member economies report progress through Individual Action Plans and Collective Action Plans, submitted to APEC annually.
  - Decisions made within APEC are reached by consensus, and commitments are undertaken on a voluntary basis.
- Peer Reviews:
  - Several APEC member economies volunteer to have their Individual Action Plans reviewed each year (Peer Reviews).
  - Peer Reviews involve a formal review team, experts conducting independent in-country research and analysis, and the independent private sector body, the APEC Business Advisory Council.
- Market scope and philosophy:
  - Trade liberalization in APEC is conducted on an MFN basis and is viewed as a vehicle to support multilateral trade liberalization.
  - The Bogor Goal is pursued through a spirit of open regionalism based on nondiscrimination and is intended to strengthen the multilateral trading system.
- Complementary measures:
  - Business facilitation and economic and technical cooperation are included because trade and investment liberalization requires development of human and institutional capacity.

### Assessments, outcomes, and criticisms
- Positive outcomes and role:
  - APEC played an important role in creating pressure for trade liberalization in the region, especially in the mid–1990s.
  - Tariff reduction through the IAP was generally more progressive than the commitment given to the WTO by APEC members.
  - Tariffs declined significantly, and the region was apparently on track toward the Bogor Goal.
  - APEC’s support for multilateralism was clear, and there was little interest in regionalism and bilateralism in the region before 1998.
- Criticisms and challenges:
  - The voluntary nature of APEC has created problems that became apparent in the late 1990s.
  - The failure of APEC’s Early Voluntary Sector Liberalization initiative in 1998 cast doubt on effectiveness.
  - The proliferation of preferential trading agreements in the region in recent years casts doubt on the relevance and effectiveness of APEC in maintaining the spirit of open regionalism.

### Key economic and trade indicators (selected figures from Appendix II)
- World: 15 12 2 2 4 19 19 19 6,077
- Australia: 6 4 1 1 1 16 18 34 20,351
- Brunei Darussalam: 3 3 1 2 4 84 33 118 12,930
- Cambodia: 18 16 3 2 6 44 58 102 297
- Canada: 6 4 1 2 4 36 31 67 23,562
- China: 18 11 2 2 5 26 22 48 989
- Hong Kong SAR: 0 0 1 1 1 125 128 254 23,466
- India: 35 29 5 2 8 10 12 23 471
- Indonesia: 13 7 1 2 4 30 19 49 930
- Japan: 6 5 1 2 4 10 8 18 31,241
- Korea: 13 12 2 2 5 30 27 57 11,500
- Lao, PDR: 10 10 1 3 7 19 31 50 325
- Malaysia: 9 8 1 2 4 99 79 178 3,880
- Mexico: 14 16 3 2 6 16 17 33 6,425
- Myanmar: 6 6 1 3 7 32 27 59 167
- New Zealand: 5 3 1 1 1 24 24 49 15,023
- Papua New Guinea: 21 6 1 1 1 60 47 107 505
- Peru: 13 10 2 1 2 14 13 27 2,018
- Philippines: 13 5 1 2 4 45 45 90 943
- Russian Federation: 13 11 2 2 5 31 18 49 2,392
- Singapore: 0 0 1 1 1 156 136 292 21,163
- Sri Lanka: 20 10 2 2 5 28 37 65 828
- Taiwan Province of China: 10 8 1 1 1 46 38 84 12,456
- Thailand: 17 14 2 2 5 52 50 102 1,994
- United States: 7 4 1 2 4 7 11 18 36,400
- Vietnam: 16 16 3 3 9 48 50 98 440

Sources for table: World Economic Outlook, World Development Indicators, and Trade Policy Information Database.
- Note: Tariffs: 1=open, 5=restrictive; NTB: 1= open, 3 = restrictive; Overall: 1= open, 10 = restrictive.

*Source: Taken mainly from APEC Secretariat (http://www.apecsec.org.sg)*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05149.pdf_