The Trans-Pacific Partnership Agreement: Looking Ahead to the Next Steps

Pressure has been building for the conclusion of the 12-country Trans-Pacific Partnership (TPP) negotiations. Getting the deal done is important, but the TPP is not just another free trade agreement (FTA). It represents the chance to set a trade agenda for the future across a wide range of topics for countries throughout the Asia-Pacific region. This means that the agreement should not be settled in haste. More importantly, it also means that key decisions need to be reached about broader issues related to the institutional structure of the TPP. These decisions must be made now, before the deal is closed, on issues such as how to create the TPP as a living agreement, the formation of a TPP Secretariat, and the clarification of entry conditions for future members such as the People’s Republic of China (PRC). These choices must be made deliberately and carefully even while officials are struggling with reaching closure on the most highly sensitive issues still remaining in the agreement. It will not be easy, but wise decisions are necessary now to ensure the long-term success of the TPP

Understanding Foreign Direct Investment in East Asia

We recount East Asia's experience with foreign direct investment (FDI). We document that, contrary to the Rybczynski theorem, capital flows in the region cause the host country's labor-intensive industry to expand and its capital-intensive industry to decline. We also present narrative evidence that sheds light on how FDI is affected by the host's country's locational advantages, whether Asian FDI is footloose, and how the PRC has become the center of Factory Asia. Finally, we show that the evolution of production networks in the region can be explained partly by changes in the service cost of linking geographically separated production blocks relative to the cost saving arising from slicing up the value chain

Engaging Small and Medium Enterprises in Production Networks: Firm-Level Analysis of Five ASEAN Economies

The Association of Southeast Asian Nations (ASEAN) small and medium enterprises (SMEs) are under scrutiny for their engagement in production networks following recent emphasis on increasing intra-regional trade, rebalancing, and inclusive growth in Asia. Using a data set covering 5,900 firms in five ASEAN economies at different stages of development, this paper analyses the participation of SMEs in production networks, determinants, and policy implications. It finds that although large firms dominate production network engagement in ASEAN economies, there are signs that SMEs have modestly increased their participation since the late-1990s. This is linked to firm-specific factors (e.g., firm size, foreign ownership, skills, technological capabilities, and access to credit) as well as a supportive business environment. Tackling residual supply-side and policy constraints can further the participation of ASEAN SMEs in production networks

The Asian 'Noodle Bowl': Is it Serious for Business

A lively debate is taking place over the impact of free trade agreements (FTAs) on East Asia's business between those who view the agreements as a harmful Asian noodle bowl - i.e., overlapping regional trade agreements - of trade deals and others who see net beneficial effects in terms of regional liberalization and a building block to multilateral liberalization. A lack of enterprise-level data has made it difficult to resolve the debate. Providing new evidence from surveys of 609 East Asian firms (in Japan, Singapore, Republic of Korea [hereafter Korea], Thailand, and Philippines), this paper seeks to address the critical question of whether the Asian noodle bowl of multiple overlapping FTAs is harmful to business activity, particularly for small- and medium-sized enterprises (SMEs). The surveys suggest that the Asian noodle bowl does not seem to have severely harmed the region's business activity to date. Use of FTA preferences is higher than expected from previous studies (22% of responding firms). Furthermore, only 27% of responding firms said that multiple rules of origin significantly added to business cost. However, as more currently under negotiation FTAs take effect and the complexity of the Asian noodle bowl increases, the business impact is likely to intensify. Implementation of key policies and closer publicprivate sector cooperation can help mitigate negative effects and facilitate a more SMEinclusive business response to FTAs. Suggestions include: encouraging most favored nation (MFN) liberalization, rationalization of rules of origin, upgrading origin administration, increased awareness of FTA provisions, improving business participation in FTA consultations, and SME support

Regional Trade Agreements and Enterprises in Southeast Asia

The spread of regional trade agreements (RTAs) in Southeast Asia has ignited a debate about their impact on business, and ways to avoid raising the business costs from the Asian 'noodle bowl' effect. This paper undertakes a comparative and firm-level analysis of the impact of RTAs in Indonesia, Malaysia, and the Philippines including: a descriptive analysis of patterns of RTA use at the firm level and econometric analysis of factors affecting firm-level RTA use. The paper finds that firm-heterogeneity matters in RTA use. Acquiring knowledge about RTAs through in-house efforts and actively forging links with RTA support institutions, building technological capabilities, and membership of industrial clusters show up as significant factors affecting the likelihood of firm-level RTA use. A lack of information about RTAs and the absence of RTAs with major trading partners are the main reasons for non-use of RTAs. Key policy implications include the need to improve business support for RTAs, to conclude RTAs with major trading partners, and to create a database on preference use in RTAs

Regional Cooperation Towards Green Asia: Trade and Investment

It is logical to argue that growth led by low-carbon goods and services (LCGS) is an imperative for the countries of Asia and the Pacific, and particularly for emerging Asian economies, which are heavily dependent on imported energy and resources. Acknowledging this fact, individual governments in Asia have recently been taking effective actions in the form of voluntary targets and policy commitments to improve the production and use of LCGS. However, the observed effects of these commitments are often challenged by many constraints, such as technological barriers, financial deficiencies, and lack of human capital, some of which are very specific to developing Asia. Different sector policies - such as in trade and environment - and investment policies that aim to facilitate private enterprises, households, and government agencies to contribute to green growth through the use of LCGS are being implemented at the national level. However, fears of competitive disadvantage mean that these policies need to be driven by global and regional frameworks that encompass all countries and sectors. In this context, the objectives of this study are to (i) measure the potential of major emerging Asian economies for exports in LCGS under the "grand coalition," partial coalition, and stand-alone scenarios; (ii) measure the impact of existing "behind the border" constraints on potential exports in emerging Asian economies; (iii) identify the potential, options, and challenges with respect to a grand coalition scenario; and (iv) find ways to improve the contribution of public-private partnerships to LCGS

Asian FTAs: Trends and Challenges

Although a latecomer, economically important Asia has emerged at the forefront of global free trade agreement (FTA) activity. This has sparked concerns about the negative effects of Asian FTAs, including the noodle bowl problem. Amid slow progress in the World Trade Organization's (WTO) Doha negotiations and the global financial crisis, however, Asian regionalism seems to be here to stay and the focus for policymakers should be how best to minimize the costs of FTAs while maximizing their benefits. Adopting a pragmatic perspective, this paper examines key trends and challenges in Asian FTAs. It provides new evidence from firm surveys, analysis of specific agreements, and computable general equilibrium estimates. It makes a case for strengthening the support system for using FTAs, rationalizing rules of origin and upgrading their administration, ensuring better coverage of agricultural trade, forging comprehensive WTO-plus agreements, and encouraging a region-wide FTA. Political economy considerations suggest that a likely scenario is for FTA consolidation in Asia to be followed by connections with North America and Europe. In conclusion, a bottom-up approach to a Doha Round Agreement emerges from the analysis

Multilateralizing Asian Regionalism

Motivated by the proliferation of free trade agreements (FTAs) in Asia over the last decade, this paper studies the challenges faced by the Asian "noodle bowl" - overlapping, multiple trade rules, regulations, and standards in Asia - in the process of regional and global trade integration. The paper first highlights the importance of trade and investment linkages among Asian economies that have formed Asian supply chains, called Factory Asia. It then considers ways and means of multilateralizing Asian trade regionalism by discussing the pros and cons of various approaches - such as the Association of Southeast Asian Nations (ASEAN)-centered regional trade agreements, including the Regional Comprehensive Economic Partnership agreement, and cross-regional FTAs, including the Trans-Pacific Partnership agreement and a future Asia-European Union FTA. The paper emphasizes the promising role of inclusive Asian regionalism and the need to move to global integration