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GTAP Resource #1732

"Titanic FTAs: Is this time to establish a Pan-Asia FTA? "
by Chadha, Rajesh


The debate on regionalism versus multilateralism, which started vigorously during the early 1990s, continues to be topical. Concerns have been expressed whether preferential trade agreements (PTAs) improve the welfare of member countries and the world as a whole. There appears to be no common agreement on whether the proliferation of PTAs will accelerate or retard the process of global trade liberalisation. International economic and trade scenario appears to have reached the crossroads of chaos and confusion with regard to issues relating to regionalism versus multilateralism. While the advocates of regional arrangements view them as stepping stones towards freer trade, believers of multilateral discipline argue that such arrangements detract from the liberalisation and fragment the global trading system. The competitive regionalism and bilateral deals are rapidly putting the most-favoured nation (MFN) principle on the back burner. The newly created constituencies may resist further multilateral liberalisation.
With the United States and the EU being engrossed in their respective titanic regional efforts, the hopes that the DDA would lead to successful multilateral trade liberalisation have gradually been fading away since the Cancun failure in September 2003. Other countries and the regions of the world, including Asia, are now displaying enhanced regional spirits. The ASEAN-plus-3 is a clear Asian move in the direction of establishing a Pan-Asia FTA.


The proposed study is an attempt to analyze the impact of formation of a Pan-Asia FTA. The world would then get divided into three major FTAs, viz. EEU, FTAA and PAFTA. We would analyze counterfactuals in this study for consequent changes in resource allocation, trade flows, returns to factors of production and national welfare across countries / regions of the world.

Methodology, Database and the Solution Software:

The analysis would be based on the GTAP-6 database used with NCAER-University of Michigan BDS-CGE model. GEMPACK would be used as the solution software package. The distinguishing feature of the Michigan Model is that it incorporates some aspects of the New Trade Theory, including increasing returns to scale, monopolistic competition, and product heterogeneity.

Experimental Design of Simulations:

The first experiment would be based on hypothetical success of the DDA agenda, under an assumption that the international trade scenario does not move forward on the path of regionalism as it exists on January 1, 2005. The alternative scenario would be to superimpose on the first scenario, simultaneous formation of a Pan-Asia FTA along with further movement and consolidation of the FTAA. The third scenario would experiment with the second scenario minus success of the DDA agenda. The fourth experiment would assume that new trading blocs formed after January 1, 2005 adopt a strategy of open regionalism along with a successful DDA.

Expected Results:

We expect that the gains for the international community would be the maximum and relatively evenly distributed under the first scenario. The second scenario might bring in relative high gains for the countries that participate in formation of the titanic FTAs but relatively low or even negative gains for those who are left out of the titanic regional game. The third scenario would result in major damages for the countries, which are not participants in the game being played by three of titanic FTAs. The fourth scenario may turn out to be the second best after the first.
While our focus would be on the member and potential member countries of the proposed Pan-Asia FTA, we would also provide results for other major trading regions of the world. The major conclusion that is expected to emerge from this paper is that multilateral trade liberalisation has positive and often sizeable impacts on the economic welfare and real returns to labour and capital in both the industrialised and developing countries / regions of the world. The second expected conclusion is that the preferential trade arrangements may be welfare enhancing for the member countries involved but these welfare gains are considerably smaller than the ones resulting from multilateral trade liberalisation. Moreover, these arrangements often involve elements of trade diversion and may be detrimental to some non-member countries / regions. In fact, open regionalism practised along with successful implementation of DDA might turn out to be a win-win game for all, participants as well as non-participants in the titanic FTAs.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2005 Conference Paper
Status: Published
By/In: Presented at the 8th Annual Conference on Global Economic Analysis, Lübeck, Germany
Date: 2005
Created: Chadha, R. (4/30/2005)
Updated: Batta, G. (6/21/2005)
Visits: 2,119
No keywords have been specified.

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